Due to various factors such as supply chain derailment due to Russia-Ukraine war, high prices of petrol and diesel, all the countries of the world including India are troubled by rising inflation. Retail inflation in the country is at a 17-month high at 7 per cent. In April, it can even cross 7.5 percent. Similarly, wholesale price inflation is at a 4-month high at 14.6 per cent. It has remained in double digits for the last 12 months. Central banks often raise interest rates to reduce the heat of inflation. RBI did the same.
Rate hike begins
To curb rising inflation, the RBI on Wednesday suddenly increased the repo rate and cash reverse ratio (CRR). This decision was taken after a sudden meeting of the Monetary Policy Committee (MPC). The repo rate has been increased by 40 basis points or 0.4 percent to 4.4 percent. Similarly, the cash reserve ratio has been increased by 50 basis points i.e. 0.5 percent to 4.5 percent. The repo rate has increased for the first time since 2018. With this, it is believed that the period of rate hike has started which may continue throughout this financial year. RBI Governor Shaktikanta Das has also indicated this. Das said that necessary steps will be taken from time to time to reduce the excess liquidity from the system. It is believed that in the current year, the repo rate may increase further by 60 to 100 basis points. A pre-scheduled meeting of the MPC is going to be held from June 6 to 8 next month. It is believed that then the central bank can once again increase the repo rate.
What is the impact of the decision on inflation?
Repo rate is the rate at which banks get loans from RBI. When banks get expensive loans from RBI, they will also give costly to customers. Cash Reserve Ratio (CRR) means that banks have to deposit a certain percentage of their total deposits with RBI in the form of cash. Now the CRR has increased from 4 to 4.5 percent, so banks will now have to deposit more cash in RBI than before. With the increase in the repo rate and CRR, the cash with the banks will be less. If there is less cash then the banks will distribute the loan less and thus the cash flow in the market decreases. Economic experts believe that due to less cash flow in the market, demand also decreases. A decrease in demand leads to a fall in prices, which provides relief from inflation. The current increase in CRR will reduce the cash flow in the market by about Rs 87 thousand crore.
What will be the direct impact of RBI’s decision on common people
Now you will get more interest on FD
With the increase in the repo rate and CRR, the interest earned on fixed deposits can also increase. However, if you are making a fresh FD, do it for a shorter period instead of a longer period.
What is the impact on PPF, EPF and Small Savings Schemes?
Experts believe that with the increase in policy interest rates, interest on small savings schemes can also increase. By the way, the interest rates on EPF are fixed by the EPFO, which is currently at a 40-year low with 8.1 percent. Interest on small savings schemes is also at a lower level at present. Therefore, they can be expected to increase.
How much is the interest on Small Savings Scheme now?
PPF: 7.1% per annum
Post Office RD: 5.8% per annum
Post Office FDs: 5.5% to 6.7% p.a. on maturity period ranging from 1 year to 5 years
Post Office Monthly Income Scheme: 6.6% per annum
Post Office Senior Citizen Savings Scheme: 7.4% per annum
Sukanya Samriddhi Account: 7.6% p.a.
NSC: 6.8% per annum
Kisan Vikas Patra: 6.9% per annum
All types of loans will become expensive, EMI will increase
With the latest decision of RBI, all types of loans will become expensive. That means your EMI will increase. The reason for this is that due to the increase in the repo rate, banks will get loans from RBI at increased rates. When banks get expensive loans, they will also give costly to consumers.
What is the effect on your pocket, understand it like this
Loan going on now?
Loans will get expensive. The bank will increase the tenure of the loan, which means you will have to pay more interest. If the tenure is to be kept the same, then you can increase the EMI by asking the bank. This is a profitable deal. 30 lakh loan is at 6.8% for 20 years, so the EMI will be 22,900 now. Now the interest rate will be 7.2%, after which the EMI will be Rs 23,620. That is, a loss of Rs 720 a month to the pocket.
Planning to take a new loan?
Take it soon Will get at increased rates, but still a good deal because now the rates may increase further. Then you will also have to pay more interest, but till the time the rates increase further, you will save some money by paying less EMI.
Auto / Personal Loan
Loan going on now?
No need to worry as you are paying interest at fixed rate. This interest hike will not affect your pocket.
Planning to take a loan?
A little expensive loan will be available, because now the new rates will be applicable. By the way, take it soon, as interest rates are likely to increase further.