RBI hikes interest rate by 40 bps to 4.40%; borrowing to become expensive

TIL Desk/Business/New Delhi/ In a move that will raise borrowing costs for corporates and individuals, the RBI on Wednesday after an unscheduled MPC meeting hiked the benchmark lending rate by 40 basis points (bps) to 4.40 per cent to contain inflation that has remained stubbornly above the target of 6 per cent for the last three months.

The Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das also raised the amount of deposits banks are required to maintain a cash reserve by 50 bps to 4.5 per cent to suck out Rs 87,000 crore of liquidity from the banking system. The CRR hike will be effective from May 21.

This is the first-rate hike since August 2018 and the first instance of the MPC making an unscheduled increase in the repo rate (the rate at which banks borrow from the RBI). The MPC unanimously voted for a rate hike while maintaining the accommodative stance. While the inflation has remained above the targetted 6 per cent since January, Das said the inflation print in April is also likely to be high. The retail inflation print for March stood at 6.9 per cent.