RBI Repo Rate Hike: The Reserve Bank of India has increased the repo rate by half a percentage point on Friday. So the repo rate has become 5.4 percent. In the Fiscal Policy Committee meeting held on Friday, the growth of the Indian economy or GDP has been estimated at 7.2 percent in the financial year 2022-23. GDP growth will be 16.2 percent in the first quarter of this financial year, 6.2 percent in the second quarter, 4.1 percent in the third quarter and 4 to 4.1 percent in the fourth quarter. In the next financial year i.e. 2023-24, real GDP growth is estimated to be 6.7 percent.
RBI Governor Shaktikanta Das also said that the Indian economy is struggling with inflation and in the last few months capital has flown out of India amounting to 13.3 billion dollars. However, Das said that sufficient capital plays in the Indian economy and India has enough foreign exchange to absorb shocks in the global economy.
What is repo rate?
Indian banks require funds for day-to-day operations. To meet this requirement, the Reserve Bank provides short-term loans to banks in the country. The interest rate charged on this short term loan is called repo rate. If the repo rate is cut by the Reserve Bank, the banks get loans from the central bank at a lower rate. As a result, banks provide loans to their customers at low interest rates. On the other hand, if the repo rate increases, as banks get loans at a higher rate, the rates of loans offered by banks to customers increase.
On the contrary, if the banks have surplus funds, the banks deposit these funds with the Reserve Bank. The interest earned on these deposits is called reverse repo rate.
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