RBI Repo Rate impact: EMIs set to rise again

Mumbai: Housing, auto and other loan  equated monthly installments  (EMI) are set to rise further after the Reserve Bank of India (RBI) on Friday raised the key interest rate by 50 basis points, the fourth consecutive increase since May, with more hikes likely to rein in inflation.

The monetary policy committee comprising 3 members from the Reserve Bank and three external experts, raised the key lending rate or the repo rate to 5.90 percent , i.e the highest since April 2019,  with 5 out of the 6 members voting in favour of the hike.

Since the first unscheduled mid-meeting hike in May, the cumulative increase in interest rate now stands at 190 basis points and mirrors similar aggressive monetary tightening in major economies around the globe to contain runaway inflation by dampening demand. The monetary policy committee also decided by a majority of 5 out of 6 members to remain focused on the withdrawal of the accommodative policy stance to ensure that inflation remains within the target going forward, while supporting growth, said RBI Governor Shaktikanta Das.

"The inflation trajectory remains clouded with uncertainties arising from continuing geopolitical woorreis and nervous global financial market sentiments, and  "If high inflation is allowed to linger, it invariably triggers second-order effects," RBI Governor Shaktikanta Das said.

The RBI lowered its prediction for economic growth in FY23 from 7.2 to 7 percent, but kept its prediction for inflation at 6.7 percent. Inflation, as measured by the consumer price index, sped up to 7 percent in August. This was caused by a rise in food prices, and it has stayed above the RBI's target range of 2 percent to 6 percent for eight months in a row.

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