"The Monetary Policy Committee (MPC) aka the rate setting panel of the Reserve Bank of India on Wednesday announced a 50-basis-point hike in the repo rate to 4.9 per cent. Repo rate is the rate at which the RBI lends money to commercial banks. This latest increase in the key rate follows a surprise 40-bps repo rate hike on May 4.
The increase in repo rate will impact both new and existing borrowers. With inflation likely to stay above the central bank’s tolerance limit, economists expect the RBI to front load rate hikes with another 50 basis points rate hike in the August policy. The RBI also allowed cooperative banks to give out loans for residential projects—a move widely expected to take off some of the pressure of rising cost of funds for developers—in addition to increasing the limit of individual housing loans provided by them.
If the central bank increases the repo rate, the cost of borrowing for retail and other loans by the banks also rises. Apart from the repo rate hike, the MPC also unanimously voted to remain focused on withdrawal of accommodation.
Congress leader Gourav vallabh today reacted to it and said that India has entered stagflation. Stagflation is a situation where the economy of a country is stagnant and inflation is rising. In both cases the common man suffers.


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