RBI Rate Hike: EMIs Of Home Loan, Auto Loan Set To Become Costlier | Know More
The RBI on Wednesday hiked the repo rate by 40 basis points to 4.40 per cent from 4 per cent earlier in an unscheduled policy review meeting, citing persistent inflationary pressures in the economy
New Delhi: Now, a borrower will have to shell out more as home, auto, and other loan EMIs are likely to increase after the Reserve Bank of India (RBI) hiked its key interest rate by 40 basis points (bps) to 4.40 per cent from 4 per cent earlier. The RBI on Wednesday in an unscheduled policy review meeting suddenly hiked the repo rate, citing persistent inflationary pressures in the economy.
During his speech, Governor Shaktikanta Das said global economic recovery is losing momentum and on the top of it persistent pressures of inflation were also becoming acute. As a result, Das said, the central bank would withdraw an accommodative stance held for the past two years.
He said that the MPC has decided to increase the Cash Reserve Ratio (CRR) by 50 basis points to 4.50 per cent. Hike in CRR can suck out liquidity to the tune of Rs 83,711 crore, Das said, while adding that the CRR hike will be effective from midnight of May 21.
The last time the repo rate was slashed was in May 2020 and has been kept unchanged since then. Das said the hike will come into effect immediately.
What is Repo Rate?
Commercial banks borrow money from the RBI when they fall short of funds. The RBI lends money to these banks at a particular rate which is known as the repo rate. The RBI periodically decides whether to hike or cut the rate or leave it unchanged. The decision of MPC could impact liquidity and inflation in the economy.
Importance of repo rate
The repo rate is an important tool for the RBI to control inflation trends. RBI can raise or cut the rates and make borrowing more expensive or cheaper for commercial banks. There is an inverse relationship between repo rate and inflation. If RBI increases the rate, it will bring down inflation, and if it lowers the rate, inflation will go up.
What is reverse repo rate?
The interest rate the RBI pays to commercial banks when they store excess cash reserves with the central bank is called reverse repo rate. The RBI used this method to control the flow of cash in the economy. This allows the central bank to 'mop up' excess cash money by making it more profitable for commercial banks to store cash reserves with the central bank.
How does it impact borrowers?
The move to raise repo rate will make bank increase interest rates on loans. As a result of this, home loans and auto loans will become costlier. If an individual is planning take a loan, he should do it soon because interest rate on loans will start increasing.
The hike in repo rate is a bad news for existing borrowers as well as banks. This move will soon start increasing interest rates on loans and that will eventually make EMIs more costly. Due to this, all loans will be impacted, be it a home loan, car loan or personal loan.
While speaking to ABP LIVE, some top bosses and executives from the real estate industry have expressed their reaction on the recent rate hike which will impact the sector.
Kaushal Agarwal, chairman, The Guardians Real Estate Advisory
The RBI's decision announced in the off-cycle meet today was aimed at re-anchoring inflation expectation and will eventually result in the strengthening of growth prospects. The decision also ends the all-time low home loan interest regime, which boosted the housing demand and helped the economy to get back to the pre-COVID levels. Thus far, the RBI's approach towards tackling the situation created by the pandemic and steps taken to help revive the economy will go down in history as being extremely pragmatic. These steps have enabled a robust recovery in the real estate sector. The latest move by the RBI along with the rise in input cost on construction might temporarily limit the growth momentum of the sector.
Pritam Chivukula, co-founder and director, Tridhaatu Realty & treasurer, CREDAI MCHI
After two years of unchanged repo rate at 4 per cent, RBI 's decision to hike the interest rate by 40 bps to 4.40 per cent has come as a sudden surprise to the real estate industry in an off-cycle monetary policy meeting held today. In keeping with the stance of withdrawal of accommodation, the sharp acceleration of rates will affect the homebuyers with concerns of EMI on home loans. The state government which is the largest beneficiary of housing demand should come forward to support the home buyers by reducing stamp duty rate to 3 per cent.
Shraddha Kedia-Agarwal, director, Transcon Developers
The RBI's decision to hike the policy rates was anticipated on the back of very high inflation. We have already started seeing a vertical movement in the home prices and the decision will further put a dent on the homebuyer's sentiments impacting the overall demand.
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