New Delhi | Jagran Business Desk: The Reserve Bank of India (RBI) has decided to hike the repo rate by 40 basis points (bps) to 4.40 per cent with immediate effect in an effort to control inflation, announced Governor Shaktikanta Das on Wednesday following an unscheduled meeting of the Monetary Policy Committee (MPC).

This is the first since April 2018 when the central bank has hiked the repo rate.

Addressing a presser, Das said all six members of the MPC decided "unanimously" in favour of hiking the interest rate while maintaining the accommodative stance. Despite that, Das said the inflation print in April is expected to remain high.

In March, the retail inflation print was recorded at 6.9 per cent.

"Nine out of the 12 food subgroups registered an increase in inflation in the month of March. High-frequency price indicators for April indicate the persistence of food price pressures," Das said, as reported by news agency ANI.

Loan EMIs to go up

Meanwhile, following RBI's decision, loan every month installments (EMIs) are expected to rise. Loan EMIs depend upon the interest rates and if they are increased, the repayment increases. Likewise, if rates are reduced, the repayment also decreases.

It should be noted that interest rates are the rates at which a bank borrows from the RBI. When the RBI increases the rates, loans for the customers will become expensive as banks borrow at higher prices from the central bank. 

RBI hikes CRR to 4.5 pc

Besides the repo rate, the central bank on Wednesday also hiked the cash reserve ratio (CRR) by 50 bps to 4.5 per cent. This, Das said, will come into effect from May 21, which will take out Rs 87,000 crore liquidity from the system.

CRR is a percentage of a bank's total deposits that it needs to maintain as liquid cash.

"It has been decided to increase CRR by 50 basis points to 4.5 per cent for net demand and time liabilities effective from the fortnight beginning 21st May 2022. Withdrawal of liquidity through this increase in the CRR would be of the order of Rs 87,000 crore," ANI quoted Das as saying.

External debt to GDP ratio remains low at 20 pc

Das on Wednesday also said that the external debt to gross domestic product (GDP) ratio also remains low at 20 per cent, noting that the country's "external sector has remained resilient amidst formidable headwinds".

"Provisional data suggest that India's merchandise exports remain strong in April this year and services exports reached a new height in March 2022," he said.

"Potential market opportunities have opened due to geopolitical conditions and the recent trade agreements and a few more trade agreements are also expected to materialise in the coming months," he added.

Posted By: Aalok Sensharma