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RBI raises repo rate by 0.25%; home and car loan EMIs set to increase
Reserve Bank of India in its quarterly monetry policy review has raised the repo rate by 0.25% making it 7.75%. Repo rate is the rate at which banks borrwo from the Reserve Bank. This action by the RBI may prompt banks to increase the lending rate which will ultimately make the home loan, car loan etc costlier.

Reacting on the RBI's action industry body Assocham said that although the Repo Rate hike by 25 basis points was expected by the markets, what is worrying for the industry is the outlook and the hints in the policy that in the wake of elevated inflation, the interest rates may be revised again.

The hint is rather clear from RBI Governor's statement which reads, "On inflation, both wholesale and consumer price inflation is likely to remain elevated in the months ahead, warranting an appropriate policy response," said Rana Kapoor, President Assocham.

Reacting to the second quarter monetary policy review and decisions announced by RBI, A Didar Singh, Secretary General, FICCI said "This is a continuation of the policy moves from the previous review. By increasing the repo rate by 25 basis points and reducing the marginal standing facility rate by the same amount, RBI is signalling that it would continue with its assault on inflation even as it unwinds some of the exceptional monetary policy measures that were taken earlier with a view to bring stability in the exchange market."

Industry body CII in a statement said that the 25 bps reduction in marginal standing facility (MSF) rate is welcome as it would help banks to reduce short term interest rates and enhance their lending operations during the busy season especially at a time when there is a significant reduction in the flow of funds to productive sectors of the economy.

CII expressed hopes for a cut in Repo rate and MSF in the next review which would rejuvenate investor sentiment and kick-start the investment cycle. At the present juncture, to aid recovery, it is imperative to step-up implementation of infrastructure projects, for which a reduction in policy rates assumes renewed urgency.

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