RBI hiked Repo Rate: bad news for loan borrower; Loan EMI rise

The Reserve Bank of India on Wednesday hiked the repo rate by 25 basis points to 6.5%, Governor Shaktikanta Das announced the decision of the monetary policy committee which was passed by a majority of 4 members of 6 members. RBI hiked Repo Rate: bad news for loan borrower; Loan EMI rise.

This was the first Monetary Policy Statement of the year. In December 2022, the repo rate was raised by 0.35 percentage points to 6.25%. There was no change in the reverse repo rate of 3.35%.

Rate hike impact on loan EMIs

Know how this repo rate hike decision by the central bank is going to impact your monthly EMI. Check the story. As widely speculated, the Reserve Bank of India (RBI) has hiked the repo rate for the sixth time in a row, by 25 bps to 6.50% with immediate effect.

After the RBI’s latest repo rate hike on February 8, banks are expected to raise interest rate in retail loans. So, it’s of utmost importance for a common man to know how this repo rate hike decision by the Reserve Bank of India (RBI) is going to impact one’s monthly EMI.

Loan EMIs to go up

It’s true that rise in bank interest rates will impact directly to the new loan borrowers and bank depositors. After the rise in repo rate, banks hike interest rate on their retail loans and after the loan interest rate hike, they usually increase tenure of the loan instead of monthly EMI.

By how much banks pass on the benefit of the February policy rate hike on their FDs will be keenly watched. In its December monetary policy review, the central bank raised the key benchmark interest rate (repo) by 35 basis points (bps) after delivering three back-to-back increases of 50 bps.

Since May last year, the RBI has increased the short-term lending rate by 225 basis points to contain inflation, mostly driven by external factors, especially global supply chain disruption following the Russia-Ukraine war outbreak.

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At present, the repo rate is at 6.25%. For FY23, RBI’s first rate hike was 40 bps in May, followed by three consecutive rate hikes to the tune of 50 bps each between June to October, and then some softening to 35 bps in December policy.