How will RBI’s Decision of Repo Rate Hike Affect Common Man?

Reserve Bank of India (RBI) raised the repo rate by 40 basis points to 4.4 percent on Wednesday. It was a very unexpected move made by RBI that can increase payable interest on home or property loans. So, let’s find out all the details about the repo rate, this announcement and how will it affect the common man. 

RBI Raised Repo Rate by 40 Basis Points

Repo Rate

On 4 May 2022, the Reserve Bank of India made a big announcement about increasing the repo rate by 40 basis points. One basis point means one-hundredth of one percentage point. That means the rate is going to increase from 4 to 4.4 percent. 

According to the experts, this move will increase the interest on home loans, car loans or property loans. It can also cause the condition of inflation.  

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What is Repo Rate?

Repo Rate

The repo rate is a fixed percentage of interest at which commercial banks borrow money from the central bank (RBI) by selling their securities. It is the main RBI tool to control inflation. 

For example, when you go short of money and take a loan from a bank, you have to pay a certain amount of interest on the principal amount. Just like that, when commercial banks go short of money, they also borrow money from RBI to maintain liquidity. And the fixed percentage of interest paid by banks to RBI is called repo rate.

Technically, repo rate stands for “repurchasing agreement rate” or “repurchasing option rate”. 

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How will it Affect the Common Borrower?

Repo Rate

As the connection is really simple, an increase in the repo rate also increases the interest rates of normal loans on homes, property, cars, etc. So, the common man has to pay higher interest on their loans. 

However, there is nothing to worries for those who have already taken loans. Their interest rates and EMIs would remain the same. 

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