What is Repo Rate? How RBI's hike in rates will impact banks and You

RBI Repo Rate hike impact: In what came as a bad news for the borrowers, with the latest hike in policy rates, the EMIs on loan is all set to go up soon.

RBI Repo Rate hike impact:Experts believe that the maximum impact will be on the housing loan borrowers as home loans are taken for a longer period of 10 to 20 years, in most cases. (PTI)

The Reserve Bank of India (RBI) on Wednesday hiked the repo rate by 25 basis points to 6.50 per cent. While a six-member Monetary Policy Committee (MPC) maintained the neutral stance on the stability in the market. In what came as a bad news for the borrowers, with the latest hike in policy rates, the EMIs on loan is all set to go up soon. Experts believe that the maximum impact will be on the housing loan borrowers as home loans are taken for a longer period of 10 to 20 years, in most cases. This the first time since October 2013 that the central bank has hiked borrowing costs at two consecutive policy meetings. Five of the six members on the rating panel voted for a rate increase. What is Repo Rate? • The rate of interest at which RBI lends money to other banks is called repo rate. • A hike in repo rates is considered as a bad news for the banks, as they would have to pay more to borrow from the apex bank of India. Change in policy rates • Any change in the policy rate will impact the lending and borrowing rates of the banks. • It's an indicator of which way are the bank's rates are headed. RBI Repo Rate hike impact on customers • Change in policy rate indirectly affects the customers because the banks decide the lending rates based on the RBI's policy rates. • Usually, when RBI hikes repo rate, banks typically pass on the customers. • Both public and private sector banks may soon pass on the repo rate hike to consumers by increasing their marginal cost-based lending rate (MCLR). • Analysts believe that the hike in rate would result in costlier the fresh loans including home loan, personal loan and auto loans. Good news for savers • Besides the fact that now the borrowers will have to pay more, the rate hike has come as a good news for savers and for retired people, who live on interest income. • As per the report, the rise in repo rate is likely to result in the higher interest rate for fixed deposits. • It may be noted that State Bank of India has increased its interest rates on FDs having maturity of more than one year with effect from July 30, 2018.