The Monetary Policy Committee (MPC), headed by the RBI Governor Shaktikanta Das, unanimously voted for the latest rate hike.
Consumer Price Index (CPI) based inflation, increased for the seventh straight month to touch an 8-year high of 7.79% in April 2022.
How does the rate hike affect you?
The RBI had already earlier hiked the repo rate in May, bringing an end to the low interest rate regime. At the time, the repo rate was hiked by 40 basis points to 4.40 per cent and the cash reserve ratio (CRR) by 50 basis points to 4.50 per cent.
This further hike will force banks and non-banking finance companies to increase repo-linked lending rates and minimum cost of funds based lending rates (MCLR) further.
The net result will be a further rise in equated monthly instalments (EMIs) for your new home, car or any personal loans you avail of.
This new hike will also affect consumption and demand could be lowered, even as the RBIs policy panel has retained Indias growth projection of 7.2 per cent.
The National Statistical Organisation on May 31 projected Indias 2021-2022 at 8.7 per cent.
Elevated commodity prices, on the back of a continuing global conflict, geopolitical tensions, continued supply bottlenecks and tightening global financial conditions all affect the growth outlook, the RBI said.
Inflation worries
Inflation is likely to remain above the upper tolerance level of 6 per cent through the first three quarters of 2022-23, the MPC said.
This signals further rate action on the part of the RBI.
Inflation is now projected at 6.7 per cent in 2022-23, Das said.
According to the MPC, considerable uncertainty due to the prevailing global conditions will plague the domestic inflation outlook.
While domestic economic activity is gathering strength, in the wake of the pandemic-induced slowdown, rural consumption should benefit from the oncoming monsoons and there is hope for increased agricultural output.