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The Reserve Bank of India has increased the cash reserve ratio (CRR) for banks by 0.50 percent to 4.5 percent.
On May 4, 2022, in the meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India, Reserve Bank Governor Shaktikant Das announced an increase in the CRR.
In the meeting of the Monetary Policy Committee (MPC), it was decided to increase the repo rate by 0.40 percent to 4.4 percent.
The new rates will be applicable from May 21.
What is Cash Reserve Ratio (CRR)?
CRR refers to the bank deposits that banks need to keep with the central bank in cash.
What is the repo rate?
Repo rate is the rate at which the central bank of a country (RBI in India's case) lends money to commercial banks when they are short of funds. Here the central bank buys securities.
What will be the effect of the hike in repo rate?
The increase in the repo rate by the RBI will increase the EMI of other loans like home and car loans.
An increase in the repo rate can help bring down inflation. The Reserve Bank believes that due to the costlier interest rate, the inflation rate will be controlled.
The impact of increasing the repo rate will also affect the savings bank account and FD. Banks can increase the interest rate on your savings account and fixed deposits.
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