RBI Repo Rate Hike Can Impact Your Investments

The RBI has hiked the repo rate by 0.25%. This is the first time in almost four-and-a-half years that the central bank has increased the benchmark interest rate. The repo rate now stands at 6.25%. While the RBI's decision to hike rates was widely expected, it still comes as a blow to investors who were hoping for a reprieve, given the recent surge in inflation. The repo rate hike will have an immediate impact on your investments. If you have invested in fixed-income instruments like bonds and fixed deposits, then you can expect your returns to go down. This is because when interest rates go up, bond prices fall. Similarly, banks will now offer lower interest rates on fixed deposits. If you have taken a home loan or a personal loan, then your EMIs are likely to go up as well. However, if you have a floating rate loan, then your EMIs will remain unchanged for now since banks are yet to pass on the higher rates to customers. Equity markets usually react negatively to rate hikes by the RBI. This is because higher interest rates make borrowing more expensive and this hits corporate profits. So, if you have investments in stocks and mutual funds, then you can expect them to take a hit in the short term. However, it is important to remember that the RBI's decision to hike rates is aimed at curbing inflation and not at spooking investors. Inflation

The Reserve Bank of India maintained its FY 2023 inflation forecast at 6.7% while revising its economic growth lower to 7.0% from 7.2%, with Q2 at 6.3%; Q3 at 4.6%; and Q4 at 4.6% respectively. The central bank RBI also raised the marginal standing facility (MSF) rate and the standing deposit facility (SDF) rate including the bank rate by 50 bps to 5.65% and 6.15, respectively.

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