Hike in Repo rates - Causes and Consequences

 Reserve Bank of India (RBI) have recently hiked the Repo rate, quoting inflation as the prime reason. Before going into the actual topic we should know the basic concept and terminologies behind this.

Repo Rate
 Rate at which banks borrow money from RBI is called repo rate.

Reverse Repo Rate
Rate at which RBI borrows money from banks is called reverse repo rate.

CRR Rate
Cash Reserve Ratio is the amount of fund the banks have to keep with RBI. Its similar to our minimum balance.

What is the need for hike ?
  Our present inflation rate is above 10%. Inflation means hike in the price of commodities due to shortage of available goods with respect to the number of buyers. Even our government has increased the dearness allowance by 10% stating the same reason. To bring the inflation under control hike in interests have been proposed.

How it will affect common man ?
   When RBI increase the repo rates, the banks in turn will rise the interest of loans. Whatever the present rate of interest(lending) will be changed from next month. So it will be a extra burden for customers who plan to avail loan for several purposes.

How much it is increased ?
 Repo rates increased by  25 basis points to 6.0 percent and reverse repo rate by 50 basis points to 5.0 percent. 
Also I suggest you to read,
Expert's View on RBI Rate Hike
Previous Repo Rate Decisions and Reasons