RBI raises repo rate. How repo rate affect the average person?

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In its first Monetary Policy statement of 2023, the RBI raised the policy repo rate by 25 basis points to 6.5%; since May 2022, the rate has seen an overall hike of 250 basis points.

In its first Monetary Policy statement of 2023, the Reserve Bank of India (RBI) on Wednesday hiked the policy repo rate by 25 basis points to 6.5%. This was the sixth straight hike to the repo rate, which, in December last year, raised by 35 basis points to 6.25%.

The decision to raise the repo rate was approved by a 4-2 majority by the central bank’s Monetary Policy Committee (MPC), said RBI governor Shaktikanta Das, who announced decisions made by the committee, which met for three days starting February 6.

But how does the repo rate affect the average person? This is how:

Increasing loan EMIs: Both loan borrowers and bank depositors will directly impacted by the increase in the repo rate, which is the interest rate that the RBI charges commercial banks when they borrow money from it. Banks will now also increase the interest rate on retail loans and typically lengthen the loan’s term; the longer the loan’s remaining term, the higher the EMI.

Overall, since May 2022, the repo rate has hiked by 250 basis points.


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