Monetary Policy: If the RBI raises repo rates by 25 basis points, how will that affect your EMI

After increasing 50 basis points three times in a row, RBI easing in December policy and raised the repo rate by 35 basis points to 6.25%. As a result, so far in fiscal year 23, repo rates have increased by 225 basis points. As a result, the Permanent Deposit Facility (SDF) ratio is adjusted to 6%, and the Permanent Deposit Facility (MSF) ratio and the Bank Rate to 6.50%.

However, MPC remains focused on accommodation recovery to ensure that inflationary remains on target for the future while supporting growth.

The RBI started its rate hike cycle in fiscal year 23 to tame inflationary pressures. Currently, inflation has fallen for the second consecutive month in December 2022 at 5.72%. This will also be the second consecutive month that inflation has fallen below the RBI’s upper limit.

In its January 2023 newsletter, the RBI said that SCBs’ lending and deposit rates have continued to move higher since May 2022 in response to a 225 basis point increase in the policy repo rate. .

According to RBI data, from May to December 2022, external benchmark lending rates and 1-year average marginal cost of fund-based lending rates (MCLRs) increased by 225 basis points, respectively. version and 107 basis points. Overall, the weighted average lending rate (WALR) on new and outstanding rupee loans increased by 135 basis points and 71 basis points, respectively, from May to November 2022. On the deposit side, the average term deposit rate (card rate) for new retail deposits increased by 75 basis points from May to December 2022.

Regarding EMI, how will another rate increase affect borrowers?

In policy February 2023, Vivek Rathi, Research Director, Knight Frank India, expects the RBI to raise repo rates by a moderate 20 to 25 basis points as inflation has dipped below 6% in the past two years. past month.

Rathi added: “With inflation under control and the pace of Fed rate hikes easing, the RBI’s focus is now likely to shift towards sustaining growth, which could ease slightly next fiscal year.” due to global uncertainties. The pace of repo rate hike is appropriate to sustain domestic demand to support the economy.”

According to expert Knight Frank, the cumulative repo rate increase to date is 225 basis points and lending rates as measured by the MCLR rate increase by 140 basis points; accounts for about 60% of the pass-through of rising repo rates into lending rates. As a result, borrowing costs have increased across product categories including home loans.

Additionally, the Knight Frank Homebuyer Affordability index has fallen slightly on average 1.4% this interest rate cycle and thus remains supportive of demand. While consumer buying trends have remained steady over the past few months, there are also some signs of a slowdown in the sequential growth in home sales, as early indicators suggest.

Therefore, Rathi hopes that adjusting the intensity of interest rate hikes in the policy will lift homebuyer sentiment and the industry, while helping to maintain the trajectory of home sales in the country.

Meanwhile, Ravi Subramanian, MD & CEO of Shriram Housing Finance said, MPC is likely to maintain its “adjusted withdrawal” stance and ease the pace of rate hikes as the RBI hikes rates by 25 basis points. in February. Retail inflation was above the allowable band of 6% and food inflation had eased. Housing credit growth is driving retail credit growth, increasing by more than 15%.Do Market sentiment in the property sector in major non-city markets remains strong, demand is likely to offset the impact of rate hikes.”

Furthermore, Rachit Chawla, Managing Director of Finway FSC explained that it is not certain that the Reserve Bank of India (RBI) will raise lending rates by 25 basis points. Most importantly, if inflation persists and things get expensive, the central bank will have to raise repo rates to maintain financial stability. It is a clear fact that with the increase in repo rates, non-banking financial companies (NBFCs) will also have to increase lending rates next and the burden will fall on the shoulders of consumers. It will be a challenge to increase outstanding loans for the NBFC if lending rates rise further, but I think it is a bold measure that the RBI needs to take to keep inflation under control.

Mahesh Shukla CEO & Founder PayMe believes that RBI’s increase in lending rates will certainly have an impact on non-banking finance companies (NBFCs) and Fintechs, and may ultimately impact on customers, but also Note these are short-term interruptions to avoid larger financial crises.

Finally, Shukla as a whole, said, “While the downside to the global economy continues, the domestic economy is showing growth and resilience, mainly due to upward movements Strict repo rate hike by financial regulator apex RBI is currently slated to ease repo rate hike by 25 basis points, considering gradual financial stability and maintaining path extended wait-and-follow approach.”

Disclaimer: The views and recommendations given above are those of individual analysts or brokerage firms, not those of Mint. We advise investors to check with certified professionals before making any investment decisions.