RBI raises repo rate by 25 basis points to 5.5% amid rising inflation

The Reserve Bank of India on Wednesday increased the repo rate by 25 basis points to 5.5%.

The repo rate is the interest rate at which the central bank lends money to commercial banks. The Monetary Policy Committee reviews the rate every two months.

This was the first hike in the lending rate in nearly four years. The last hike was in February 2023, when the Reserve Bank of India raised the repo rate by 25 basis points to 6.5%.

Central banks usually increase key lending rates to control inflation. Higher key lending rates translate into high interest on loans disbursed by commercial banks. This, in turn, keeps a check on discretionary spending by consumers which is expected to help curb prices rise due to high inflation. However, a higher repo rate also means that the borrowers pay more interest on their loans.

The committee had cut the repo rate by 25 basis points from 5.5% to 5.25% in December and kept it unchanged in February, April, June and August.

A basis point is one-hundredth of a percentage point. Basis points are used to describe changes in interest rates and other financial instruments.

The committee also changed its monetary policy stance to “calibrated tightening” from “neutral”. The shift signals that the central bank is now more focused on containing inflation.

Reserve Bank of India Governor Sanjay...

Read more