RBI hikes interest rate by 35 bps: How will this impact you

New Delhi, Dec 07: The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) hiked the key policy rate, the repo rate to banks by. 35 basis points to 6.25 per cent in a bid to reign in retail inflation. The MPC also lowered its growth forecast to 6.8 per cent from 7 per cent for the current financial year amidst concerns of a beak global economic outlook. The RBI also retained its retail inflation forecast at 6.7 per cent.

The hike in the repo rate, fifth since May 2022 was a unanimous decision of the six member MPC which is headed by RBI Governor, Shaktikanta Das. The MPC also decided by a majority of 4:6 to remain focused on the withdrawal of accommodation.

The impact of the decision:

The lending rates of the banks are expected to go up as the cost of the funds is expected to increase further. EMIs on home, personal loans and vehicle loans will also rise as a result of this decision. The external benchmark linked to lending rates of banks will rise by 35 bps as such loans are linked to the repo rate. As much as 43,6 per cent of the total loans are linked to the Repo rate.

Marginal cost of funds-based lending rates which account for 49.2 per cent of the loans portfolio of the banks are also likely to increase and the tile would help moderate the inflation in the country.

Further the deposit rates are also excepted to rise in the near future. SBI, India's largest bank now is offering 6.10 per cent rate on a one-year term deposit.

With the latest hike, the repo rate or the short-term lending rate at which banks borrow from the central bank now has crossed 6 per cent.

This is the fifth consecutive rate hike after a 40 basis points increase in May and 50 basis points hike each in June, August and September. In all, the RBI has raised the benchmark rate by 2.25 per cent since May this year.