In an unscheduled announcement, Reserve Bank of India (RBI) Governor Shaktikanta Das raised the key lending rate, repo, by 40 basis points on May 4.

One basis point is equal to one tenth of a percentage point.

The unexpected action came ahead of the US Federal Reserve’s projected rate hike, and against a backdrop of retail inflation that has consistently remained over the central bank’s comfort zone.

This is the RBI governor’s first unplanned statement since the pandemic began in 2020. As a result, the repo rate is now 4.40 percent. The announcement startled the markets, causing bond yields to climb and equities indices to fall.

The rate at which the central bank lends short-term funds to banks is known as the repo rate. Since February 2019, the RBI has reduced the repo rate by 250 basis points to assist in reviving the growth momentum. The Monetary Policy Committee has been accommodative for a long time in order to boost growth.