Loans to be expensive as RBI raises repo rate

Repo rate is the rate at which the central bank of a country lends money to commercial banks.The central bank of a country increases repo rate in order to curb inflation.

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Reserve Bank of India (RBI) recently revised the repo rate at the three-day monetary review policy meeting on Wednesday. The central bank increased the repo rate by 0.25 per cent from 6 per cent to 6.25 per cent. With the decision by RBI, the loans will now become expensive with higher interest rates.

Most experts believed that rising retail inflation and increased crude oil prices, led to RBI's decision to increase the repo rate.

The biggest challenge before the Reserve Bank is to overcome inflation, which is getting close to going out of the Conflict Zone of RBI. Retail inflation has remained consistently above 4 per cent since November 2017, while core sector inflation is 6 per cent.

This has been the first instance of increase in repo rates since BJP government came into power in May 2014. Along with the repo rate, reverse repo rate also has been adjusted to 6 per cent.

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