New Delhi: Shocking news for borrowers. With the Reserve Bank of India (RBI) planning to increase the repo rate by 3550 basis points (bps), prices across all home, auto and personal loans are likely to rise in the coming days. RBI has been continuously increasing policy rates to control inflation. So far, the central bank has raised the shortterm lending rate twice. It was hiked by 40 basis points in May and 50 basis points in June.
Notably, the current repo rate of 4.9 percent is lower than the preCovid rate of 5.15 percent. The central bank cut the benchmark rate sharply in 2020 to deal with the crisis created by the pandemic. Experts expect the Reserve Bank to raise the benchmark rate this week, at least to prepandemic levels.
“We now expect the Reserve Bank’s Monetary Policy Committee (MBC) to raise the policy repo rate by 35 bps on August 5, shifting the stance to a calibrated tightening,” a BofA Global Research report said. A measured 25 bps hike cannot be ruled out either.
RBI MPC meeting: What to expect
Reserve Bank of India’s ratesetting committee the Monetary Policy Committee will meet for three days from August 3 to discuss the prevailing economic situation and announce its bimonthly review on Friday.
In a statement, Radhika Rao, managing director and senior economist at TBS Group Research, said the RBI’s monetary policy committee is expected to focus on price stability over the next two quarters.
Factoring in the peak inflation in the JulySeptember quarter, he opined, “We expect a hike of 35 bps in August, followed by three possible hikes of 25 bps, which could bring it down to 6 per cent by the end of FY23.”
RBI hiked repo rate by 90 bps while US Federal Reserve hiked rate by 225 bps in CY22, Bank of Baroda’s research report said. The aggressive interest rate hike by the central bank has given rise to expectations that the Reserve Bank may also hike its rate hikes. However, it added that conditions in India do not warrant an aggressive stance by the RBI.
The government has directed the RBI to ensure that CPIbased inflation remains at 4 per cent at the rate of 2 per cent on either side.
Dhruv Aggarwal, Group CEO, Housing.com, said while other banking regulators around the world, including the central bank, are aggressively raising rates, India’s situation does not yet warrant such an approach. “In our estimation, it is expected to be in the range of 2025 basis points,” he added.
How RB Repo Rate Hikes Affect Your Loan EMI
If the RBI raises the repo rate, the effect will have a direct impact on borrowers as banks and non banking financial institutions (NBFCs) are expected to raise lending rates. As banks and housing finance companies may raise their loan rates, borrowers may have to pay higher EMIs. As a result your EMIs will be higher.