RBI Hikes, Increased Repo Rates, and CRR Influence on Citizens

The 10-year government bond has shot up 26bps and the street is expecting another hike in the rate in the policy that is going to come up in June. Due to this, the standing deposit facility (SDF) is now at 4.15% and the marginal standing facility (MSF) rate is at 4.65%. This was a surprise move by the Monetary Policy Committee (MPC) of the Reserve Bank of India. They decided to increase the repo rate unanimously by 40 basis points in an off-cycle meeting that cited the concern for inflation. This was again followed by a hike of 50 bps in the cash reserve ratio to 4.5% which is supposed to drain out as much as Rs.87000 crore liquidity from the banking system. This was the first hike in the repo rate in the last 45 months since August 2018.

The increase in the repo rates would mean that the lending rates will also get pushed up like 40% of the loans of the commercial bank are linked to it. Given below are the 5 ways how, the Repo rate and CRR hike will impact you:

Loans will be much costlier

The repo rate hike will increase the rate of interest that the bank charges an individual on home loans or any other loans. Most of the banks have increased their rate of interest already. Now once RBI has announced the hike, the rate of interest is expected to go up higher.

Rise in the interest on deposits

For the investors, this will prove to be a blessing. The interest rates on the deposits that include the post office savings account, normal savings account, fixed deposits, and others will also rise.

The rise in the yields of the bonds

Like the rate of interest on the deposits, even the yields of the bonds will rise.       

There will be a slowdown in the economic recovery

In the last MPC announcement, RBI governor Das had said that the demand is not yet the same as the pre-pandemic times. The loans are getting more costly and therefore, the recovery in the demands is likely to face more difficulties. According to a report that has been published by Business line, private consumption is yet to move strongly above the pre-pandemic levels.

Fall in inflation

There has been a rise in the CRR and the RBI is trying to suck out the excess liquidity from the economy. The policymakers are worried about the inflation rates of March and April. The Russia Ukraine war has also raised the prices of most commodities. There has been a very big hike in the price of oil. In such a scenario, higher demands also push inflation upwards.