The Reserve Bank of India (RBI) on Wednesday raised its key lending rate (repo) by 50 basis points in its June policy meeting. The central bank raised its key interest rate to 4.90 % in an effort to cool down the persistently high inflation. Inflation has been above the RBI’s 2-6% target range since the start of this year.
The cost of capital for banks increases as the repo rate increases. Repo rate is the rate at which the RBI lends short-term loans to banks. The immediate impact of the repo rate hike is on retail loans like home loans.
“The home loan interest rate that bottomed around 6.50% in April will now inched up to 7.60% in June. Consecutive repo rate hikes will make floating rate loans last longer. For example, if a person had Adhil Shetty, CEO, BankBazaar.com, said if the loan interest rate is 7% for 20 years and if their interest rate rises to 7.50%, they will need to pay 24 more. EMIs again.
“If they had chosen to adjust their EMI, each of their trillion EMIs would have increased by Rs 30 in the example above. In essence, their monthly outbound cost would increase by about 4%. The math is different for each person. loan. It is important to pay off the loan within the intended time frame. Borrowers can use prepayment methods such as EMI step-up or one-time payments to control their interest burden.” he added.
Last month, the Reserve Bank raised the repo rate to 40 bps in an off-cycle meeting, making it the first rate hike since August 2018.
“With the repo increase, interest rates on home loans will increase. A total increase of 90 bps over 36 days means that all floating-rate home loans will be more expensive. Current borrowers Existing and new will have to phase out higher EMIs such as banks and housing finance companies will pass rate hikes on them This may not be the last as the RBI is expected to rise interest rates until 2022 or until inflation is brought to an acceptable level Borrowers can extend the term of a home loan to keep their EMIs unchanged or prepay a portion of the amount money to minimize your added interest burden. Your credit score will play an important role in helping you access lower interest rates, especially if you’re refinancing your loan,” he said. Shetty added.
In addition, the RBI has raised its inflation forecast for the current fiscal to 6.7% due to the ongoing geopolitical tension – the Russo-Ukrainian war.
RBI Governor Shaktikanta Das said inflation could remain above 6% for the first three quarters of the current fiscal (2022-23).
“The 50 bps repo rate hike comes from continued inflation and continued upside risks. As inflation is expected to remain above 6% through the end of Q3 FY23, RBI said. must take action first We continue to see 60 more- Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, said an 85 bps increase in the remainder of FY23 to manage inflation expectations.