After four years, RBI hikes repo rate by 25 bps to 6.25 per cent on inflation fears

Mumbai: Home, auto and personal loans may get costlier as the Reserve Bank of India (RBI) on Wednesday hiked the policy repo rate by 25 basis points to 6.25 per cent for the first time in last four years to curb rising inflationary pressures.

Loan EMIs may increase if the banks decide to pass on the hike. The repo rate is the rate at which the RBI lends short-term money to the banks. The central bank has also increased the reverse repo rate — the rate at which the RBI borrows from commercial banks — to 6 per cent from 5.75 per cent.

This is the first increase in interest rate since January 2014. Since then, the RBI has slashed rates on six occasions.

After the hike, financial market participants said the latest RBI move is the beginning of a rate hike cycle and they expect another 25 basis point hike by the end of this year.

While hiking the repo rate, the six-member monetary policy committee unanimously retained its growth projection for FY19 at 7.4 per cent but revised upwards its inflation forecast due to steep rise in global crude oil prices.

Since its last policy meeting in early April, the MPC noted that the price of Indian basket of crude has surged from $66 per barrel to $74 per barrel. This along with an increase in other global commodity prices and recent global financial market developments has resulted in firming up of input cost pressures. “The resulting pick-up in the momentum of inflation excluding food, fuel and HRA has imparted persistence into higher CPI (Consumer Price Index) projections for 2018-19,” RBI said in the policy.