Mumbai: In a move that has dampened festive season spirits, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) surprised everyone today by announcing a 25 basis point (0.25%) hike in the repo rate. This unexpected decision, which comes after holding rates steady for three consecutive quarters, pushes the repo rate up from 6.50% to 6.75%.
Announcing the decision, RBI Governor Shaktikanta Das stated that this “tough but necessary” step was taken in light of global uncertainties and the recent spike in food inflation.
Chaos in the Market, Investors Disappointed
Immediately following the RBI’s announcement, the stock market witnessed a massive wave of selling. As of 1 PM, the BSE Sensex was trading 845 points lower at 80,580, while the NSE Nifty had plunged 250 points, falling below the crucial 24,650 mark.
The steepest declines were seen in the banking, real estate, and auto sectors, which are directly impacted by interest rate changes. Shares of HDFC Bank, ICICI Bank, Bajaj Finance, and Maruti Suzuki fell by 3% to 4%.
Why Was This Decision Taken?
At the press conference, the RBI Governor explained, “Our primary goal is to bring inflation within our 4% target. The recent uneven distribution of the monsoon and rising global commodity prices have created a renewed risk of inflation rearing its head. While growth in the economy is robust, price stability is paramount for sustainable growth.”
What is the Impact on the Common Person?
The repo rate hike will have a direct impact on the budget of the common person:
- EMIs to Get Costlier: Banks will now increase interest rates on home, car, and personal loans, which will increase the burden of your monthly EMIs.
- Impact on Real Estate Demand: Higher home loan costs could lead to a slowdown in home sales during the festive season.
Expert Opinions
Market expert Ajay Bagga commented, “This decision is completely contrary to market expectations. The market was hoping the RBI would hold rates steady or signal a future rate cut. This hike will ensure volatility in the market in the near term.”
However, economist Dr. Ashima Goyal supported the move, stating, “This is a forward-looking step by the RBI. It is better to take a small, bitter pill now to control inflation than to let it become a bigger problem later.”
Overall, the RBI’s move has sent a jolt through everyone, from Corporate India to the common citizen, and has weakened the sentiment for the upcoming festive season. All eyes will now be on next month’s inflation data.
