Inflation-stung Reserve Bank of India scurries to up repo rate

Sudden hike expects to push up the EMIs on home, car and personal loans

Reserve Bank of India.: File photo

TT Bureau   |   Mumbai   |  05.05.22  : The RBI stunned the street on Wednesday after an unscheduled meeting raised the policy repo rate by 40 basis points to 4.40 per cent in a fire-fighting measure to tamp down on inflation which shot up to a 17-month high of 6.95 per cent in March.

The sudden repo rate hike is expected to push up the EMIs on home, car and personal loans.

The RBI’s announcement came hours before the US Federal Reserve ended its policy meeting on Wednesday. The Federal Reserve announced a stiff rate hike — its largest increase since 2000 — to bottle inflation, which hit a 40-year high of 8.5 per cent in March.

The Indian central bank also announced a hike in the cash reserve ratio by 50 basis points to 4.5 per cent, which is expected to suck Rs 87,000 crore out of the system.

The markets have not taken kindly to the RBI’s sudden action: the Sensex tumbled 1,306 points to close at a two-month low of 55,669.

The last time the RBI came out with an out-of-turn statement was in March 2020 when it cut the policy rate by 75 basis points to fight the pandemic.