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Reserve Bank increases repo rates; home, auto loans to get more expensive
Reserve Bank of India has given a big blow by increasing the repo rate by 0.25 basis points. The central bank has also changed the reverse repo rate. Now, the new repo rate is 6.5 per cent and the reverse repo rate is 6.25 per cent.

This change in repo rate by the RBI will have immediate repercussions because the banks will increase interest rates on all types of loans.

Retail and wholesale inflation has increased tremendously in the last two months. Prices of petrol and diesel have continued to rise owing to the rupee becoming weak. Crude oil prices in the global market have risen almost 20 per cent this year, and crude oil went above 80 dollars per barrel during May. This level of crude is the highest ever after 2014.

RBI had retained the GDP growth estimate at 7.4 per cent in FY13. According to the RBI, GDP growth in April-September is estimated to be 7.5-7.6 per cent. At the same time, the inflation rate is expected to be 4.2 per cent between July and September. 

This will be the first time since October 2013, when the Reserve Bank has increased interest rates twice. Inflation is estimated to be 4.8 per cent between October and March. The next meeting of the Monitoring Policy Committee will be held between October 3 and 5. 

The repo rate is the rate at which the commercial banks borrow from the Reserve Bank. Whenever banks lack funds, they take money from the central bank to compensate it. The rate at which the loan is received from the Reserve Bank is called the repo rate.

The decision to cut or increase the repo rate is taken on the basis of the current situation and the future of the economy. The statement issued after the three-day monetary policy committee meeting which said, that so far the growth of monsoon and the sharp increase in the minimum support price (MSP) of kharif crops will increase the income of the farmers and the demand of farmers in the end will grow.

The central bank said, "The better financial implications of the companies, especially the day-to-day use of goods manufacturing units, also reflect the growth in rural demand." The top bank said that investment activities remain strong. However, in the recent period the financial situation is a little tight. 

According to monetary policy statement, the rise in FDI inflows in recent months and the steady acceleration in the domestic capital market is better than investment activities. The central bank stated that activities in the manufacturing sector are expected to remain strong in the second quarter.

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