The Reserve Bank of India (RBI) has slowed the interest-rate hike to a quarter percentage point but not indicated that there will be a pause after this.

Loan EMIs are set to rise further as will deposit rates with no guarantee coming from the RBI Governor Shaktikanta Das that the current tightening cycle will be put on hold in the next monetary policy, to be held after two months.

Several bankers and market analysts had expected that this would be the last rate hike and there would be no need for further rate increases to curb inflation, at least for some time. 

The RBI has raised rates by 225 basis points since May 2022, taking it to 6.50%. This is the sixth consecutive time that the central bank has increased the key benchmark rate. 

In the last monetary policy in December, the central bank had raised the repo rate by 35 basis points, after three straight 50-basis-point hikes. 

The 25-basis-point hike in short-term lending rate was decided today by the RBI’s rate-setting panel with a 4:2 majority. Ashima Goyal and Jayanth R Varma voted against the increase. This is the last meeting of the monetary policy committee (MPC) in this financial year.

The repo rate is the rate at which the RBI lends to the banks. 

The monetary policy committee (MPC) decided to remain focused on the withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth. Four out of the six members of the MPC voted in favour of this stance.

"The stickiness of core or underlying inflation is a matter of concern. We need to see a decisive moderation in inflation. We have to remain unwavering in our commitment to bring down inflation," RBI Governor Shaktikanta Das said, while announcing the committee's decision.

While the effect of earlier rate hikes are still working their way through the economy, further calibrated monetary policy action is warranted, Das added.

With the upward rise in interest rates, retail loans such as home, auto and personal will become costlier. Borrowers will have to pay higher monthly EMIs or extend the tenure of their loans, or do both.

The RBI's inflation projection for the current fiscal was lowered to 6.5% from the earlier print of 6.7% while it expressed concern about core inflation. 

The growth forecast was lowered to 6.4% for the next fiscal from 6.8% projected in December.