The Reserve Bank of India (RBI) raised the repo rate by 50 basis points at the end of its three-day meeting on June 8, the second increase in five weeks. Multiple polls, including a Moneycontrol poll of 15 economists, predicted a 40 basis point increase, so the move was unsurprising. In anticipation of a significant increase in April inflation, the monetary policy committee (MPC) met unexpectedly in early May and unanimously voted for a 40 basis point repo rate hike. The repo rate is the interest rate at which the Reserve Bank of India lends short-term funds to banks.
Following the MPC's decision to raise the standard policy rate by 50 basis points, many lenders, including ICICI Bank and Bank Baroda, increased their external benchmark linked loan rates by the same amount.
ICICI Bank raised its external benchmark lending rate by 50 basis points to 8.60% on Thursday, while Bank of Baroda raised its repo linked lending rate to 7.40%. RBL Bank also increased its repo-linked lending rate by 50 basis points to 10%, effective June 8, 2022. Federal Bank, another private sector lender, has increased interest rates in response to the increase in repo rates.
The six-member MPC raised the repo rate by 50 basis points to 4.90 percent on Wednesday, the second time in two months. The rate-setting body has raised the repo rate by 90 basis points since May to tame headline inflation, which has consistently exceeded the 6% threshold.
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