[ad_1]
Amidst inflation, the Reserve Bank of India has announced an increase in the repo rate again. After the meeting of the Monetary Policy Committee, RBI Governor Shaktikanta Das said on Wednesday that the repo rate has been increased by 0.25 percent. Das told that in the meeting it has been decided to increase the repo rate by 4-1.
After the increase, the repo rate has increased from 6.25 percent to 6.50. The increase in the repo rate will have a direct impact on all loans including home, auto and personal and its EMI. This is the sixth consecutive increase in the repo rate after 2022. According to RBI, the repo rate has been increased by 2.50 percent in the last 8 months.
After 2018, RBI has increased the repo rate by 0.40 per cent in May 2022, 0.50 per cent in June 2022, 0.50 per cent in August 2022, 0.50 per cent in September, 0.35 per cent in December 2022 and now 0.25 per cent in February 2023.
What is repo rate and reverse repo rate?
Reserve Bank lends to other banks and the charge it takes in exchange for the loan is called repo rate. And when the bank keeps its money with RBI and the interest it gets in return is called reverse repo rate.
If the repo rate increases, then the bank gives loan to the customer at a higher interest rate. The reverse repo rate is increased when there is excess cash in the market.
How does inflation increase, what is the situation now?
The whole game of increasing inflation depends on supply and demand. If the common man has cash and money, then he insists on buying goods, due to which the demand increases.
On the other hand, due to obstruction in the supply chain, the supply of goods is not possible. There can be many other reasons for this. In such a situation, when the supply is not done in a normal way, then there is an increase in inflation.
According to RBI, the retail inflation rate is estimated to be 6.5 percent in the current financial year and 5.3 percent in the next financial year 2023-24. However, in December 2022, a decline was observed in the inflation rate and it reached 5.72 percent. The target of RBI is to bring down the inflation rate below 4 percent.
What is the relation of inflation with repo rate, 2 points…
1. Increasing the repo rate will reduce the demand- Actually, behind increasing the repo rate, the RBI tries to make the EMI of the loan taken by the common man or the upcoming loan expensive, which will reduce the money flow and reduce the demand. .
Think of it like this- RBI will give loan to commercial banks at higher rate of interest after increasing the repo rate, then the bank will also increase the interest, which will directly affect the common customer and the demand will decrease.
As soon as there is a decrease in demand, the supply will increase and retail inflation will be affected. However, this traditional formula is not working much over the years.
2. Efforts to improve the economic system- According to the report, the demand for loans has been increasing continuously for the last few years. To reduce this, RBI has no option but to increase the repo rate.
Interest rates are increasing in other countries of the world as well. Some money is also invested in India, on which more interest has to be paid. In such a situation, if the repo rate is not increased, then the economic system will get disturbed.
In this situation it will not be easy to control inflation. RBI also decides to increase the repo rate several times considering the long term.
Rupee is also expected to strengthen
After the increase in the repo rate, the money available with the common people in the market comes to the banks and then to the RBI. In this situation, the rupee also gets strengthened.
In the last few weeks, the rupee was continuously falling against the dollar. In such a situation, RBI is making an attempt to revive the rupee by increasing the repo rate.
Increase 6 times in 8 months, what will happen next?
From May 2022 till now, RBI has increased the repo rate 6 times in 8 months. In such a situation, the question is now arising whether such hikes will happen in future as well?
Industry Secretary General Deepak Sood tells news agency PTI – I think this is the last increase of this year. This decision has been taken to deal with the current situation in the world and to reduce inflation.
Can there be a cut in the repo rate as well? Madan Sabnavis, Chief Economist of Bank of Baroda says – There is less possibility of reduction in the repo rate in the current financial year i.e. 2022-23. Right now there can be a risk of inflation going up, so RBI has taken this decision.
The next meeting of the next monetary policy committee of RBI is proposed between April 3 to 6, 2023. In such a situation, whatever decision will be taken now, it will be from the perspective of the financial year 2023-24.
[ad_2]
Source link