RBI hikes repo rate by 0.5 percent

MUMBAI: The monetary policy committee of the Reserve Bank of India (RBI) has decided to raise the repo rate by 50 basis points to 5.40 per cent in order to contain the persistently high inflation. Today's hike takes the repo rate above pre-pandemic levels of 5.15 per cent.

Raising interest rate typically suppresses demand in the economy, thereby helping inflation to decline. India's retail inflation has been over the RBI's upper tolerance band of 6 per cent for the sixth consecutive month in a row now.

In line with the global trend of monetary policy tightening to cool off inflation, the RBI has so far hiked the key repo rate -- the rate at which the central bank of a country lends money to commercial banks -- by 140 basis points in three instances.