On August 5, the Reserve Bank of India (RBI) raised the repo rate by 50 basis points to 5.4%. The goal of India’s central bank has also maintained maintaining an inflation rate within the target range while promoting growth. “RBI’s decision to raise the repo rate is in response to the headwinds being faced by Indian economy including high inflation, uneasy financial markets, foreign portfolio outflows, majorly caused by distress in the global economic situation,” said Pradeep Multani, president, PHD Chamber of Commerce and Industry.
The rate at which commercial banks borrow money from the Reserve Bank of India is referred to as the repo rate. The cost of borrowing for retail loans and other bank loans increases if the central bank raises the repo rate. By raising loan interest rates, banks will pass along the growing cost to borrowers. As a result, borrowers of house loans will have to pay higher equated monthly instalments (EMIs) for both personal loans and home loans.
“So far the commercial banks have transmitted the policy rate hike to the borrowers, resulting in an increase in lending rates across all the sectors including real estate. Today’s rate hike will further harden the rates,” said Shishir Baijal, chairman and managing director, Knight Frank India.
Since May, the RBI has increased the repo rate by 140 basis points. The total rise in the repo rate after the most recent boost is 1.4%. Both the new and existing borrowers would be impacted by this. The impact on borrowers will be rapid because the majority of lenders have linked their house loan lending rate with the repo, said to Pranjal Kamra, CEO of Finology Ventures.
After the RBI’s August Monetary Policy, the interest rate is anticipated to increase from 6.5 to 7 percent for borrowers who took out home loans before April to roughly 8%.
For instance, your EMI will increase from Rs 23,259 to Rs 25,845 if you have already taken up a home loan for Rs 30 lakh at 7% for a 20-year term in April 2022. If the house loan interest rate increases from 7.4% to 8.4% after three consecutive increases in the repo rate, there will be a rise of Rs 2,586 in monthly EMIs.