After a meeting on Wednesday, the central bank’s Monetary Policy Committee (MPC) have surprised the financial markets by raising the repo rate by 25 basis points. Currently the repo rate is 6.25%. However, the reverse repo rate has been monitored at 6%. The MPC with it’s decision is trying to maintain the neutral stances of monetary policy with the aims of fulfilling the objectives in relation to the medium term Consumer Price Index (CPI).
The decision by MPC regarding the hike of repo rate, is said to be a collective one and the minutes of the said meetings will be out by 20 June this year. This particular increase is enough to estimate that the EMI’s i.e Equated Monthly Instalments of the car loan and the home loans will also hike up. This is where the common man will be directly affected. On the other way, RBI has decided to make no changes in the CRR (Cash Reserve Ratio) which continues to be 4%.
The GDP growth is expected to be at 7.3 or 7.4 % in the period from October to March. Whereas the CPI from the period April to September is expected to be between 4.8 – 4.9%. The next meeting of the MPC is supposed to be on 31 July or 1 of August this year.
Repo rate rise was expected to be part of August policy, hence a surprise to the financial markets. The sensex and nifty is continuing to grow along with the increasing share prices of automobile sector, banking sector and real sector, may it be a mid cap or a small cap industry.
Repo rate is the rate at which the central bank of the country (RBI) lends money to the commercial banks in case of any shortfalls.
It is one of the methodology used by the monetary authorities to control the inflation. Reverse repo rate on the other hand is the rate at which the central bank can borrow the money from the commercial banks within the country. Repo rate and reverse repo rate form part of liquidity adjustment facility.
Now, after the rise in the repo rate and estimated rise in the food, fuel and loan prices, it will be interesting to note how the market adjusts until the MPC’s next decision.
(PHOTO INPUT:- FACEBOOK/RBI )