RBI Repo Rate Hike To 5.50%: Reserve Bank of India (RBI) Governor Sanjay Malhotra announced on Wednesday that the Monetary Policy Committee (MPC) has unanimously voted to raise the repo rate by 25 basis points to 5.50%.
The repo rate is the interest rate at which the RBI lends short-term money to commercial banks against government securities. When this rate goes up, borrowing money can become more expensive for banks.
This can affect customers who have floating-rate loans. Home and car loan borrowers could see their interest rates and EMIs increase if banks pass on the full 0.25% hike. Fixed-rate loans generally aren’t directly affected by a repo rate change.
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The impact can be different for every borrower because it depends on the loan amount, remaining tenure and interest rate. For example, consider a ₹50 lakh home loan taken for 25 years at an interest rate of 7.50%. The monthly EMI would be around ₹36,950. If the rate goes up by 0.25% to 7.75%, the EMI could increase to around ₹37,766.
This means the borrower could pay about ₹816 more every month. Over a long loan period, even a small increase in the EMI can add a significant amount to the total repayment.
For a larger loan, the difference can be bigger. A ₹1 crore home loan for 20 years at 8.50% would have an EMI of around ₹86,782. If the rate rises to 8.75%, the EMI could increase to around ₹88,371.
That would mean an increase of around ₹1,589 every month.
Car loan borrowers can also be affected if their lender increases floating interest rates after the repo rate hike.
For example, a ₹10 lakh car loan for five years at 9% would have an EMI of around ₹20,758. If the rate rises to 9.25%, the EMI could go up to about ₹20,875. The actual impact depends on the bank or lender and the type of loan.
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Several things are considered while deciding loan interest rates. These include the loan amount, repayment period, credit score, type of loan and overall market conditions. Inflation and RBI monetary policy can also influence lending rates.
Banks also look at their asset-liability position while setting lending rates. Loans are treated as assets for banks, while customer deposits are liabilities. Banks that have a larger pool of low-cost deposits may not immediately pass the entire repo rate increase to borrowers.
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