RBI hikes Repo Rate by 25 bps to 7.75% – Reserve Bank of India (RBI) has raised its policy interest rate i.e. Repo Rate to 7.75% by 25 basis point. The RBI was forced to do so due to higher inflation rate. Present inflation rate is highest in three years which is 18.4 per cent in September, its highest since mid-2010.
This was the expected move by industry from RBI Governor Mr. Raghuram Rajan. Share market has shown a positive growth for the response. RBI also lowered its Marginal Standing Facility (MSF) rate a further 25 bps to 8.75 percent. CRR i.e. Cash Reserve Ratio kept unchanged.
This move will eases liquidity in the banking system ideally the gap between repo and MSF rates should be usually 100 basis points.
Reverse Repo rate under the LAF stands adjusted to 6.75 percent and the Bank Rate stands reduced to 8.75 percent.
This new move will make Bank’s loan costly and EMI moves up. Banking stocks may hit the high.