RBI Repo Rate: RBI Governor has announced to increase the repo rate after the MPC meeting which lasted for three days (September 28 to September 30). RBI has announced a 0.50% hike in the repo rate. Now the repo rate of RBI has increased from 5.4% to 5.9%. Earlier in August, RBI had increased the repo rate by 50 basis points. In the MPC meeting held in May also, the repo rate was increased by 50 basis points to 4.90%.
How will the hike in repo rate affect your loan EMIs?
All loans will become costlier due to increase in repo rate. Actually repo rate is the rate at which RBI provides loans to other banks. In contrast, reverse repo rate is the interest rate that the central bank pays to the banks on keeping money with the RBI. Therefore it is generally believed that if RBI reduces the repo rate then banks will reduce the interest rate and if RBI increases the repo rate then banks will increase the interest rate. This will make the loan available to the common man expensive.
After increasing the repo rate, banks will increase the interest rate, due to which the EMI will be expensive.
Suppose a person named Ramkumar had taken a loan of Rs 10 lakh from a bank for 10 years at the rate of 6.5% six months ago. The EMI of his loan at that time was Rs 11,355. Since then, the repo rate has increased by 150 basis points. This means that the bank will charge at least 1.5% or more on the loan taken at that time at an interest rate of 6.5%. If the bank charges only 1.5% additional interest, then now the interest rate of the above loan will increase from 6.5% to 8 percent. In this way, the new EMI on Ramkumar’s loan will now be Rs 12,133 per month at an interest rate of 8%. In such a situation, Ramkumar will now have to pay Rs 778 more on his loan as compared to last May.
If loan is taken at fixed interest rate then there is no need to worry
If you have taken a loan from the bank at a fixed rate, then you do not need to worry due to the increase in the repo rate. This will also have an impact on loans taken only at variable rates. Further fluctuations on fixed rate loans are not affected by interest rates. At the same time, the loan taken at variable interest rates keeps on changing.
It has been said by the Central Bank that the decision will be applicable only with the present effect. RBI Governor Shaktikanta Das has given information about this decision. RBI Governor has said that the risk of inflation still remains. He has said that the country’s economic condition is strong in challenging times. Our GDP growth is the best. RBI Governor has said that the whole world is going through a crisis. There is turmoil in all segments of the financial market. The demand is expected to pick up during the festivals, he added. The accommodative stance of the RBI remains intact.
He said that the CPI is above our target, so the MPC has decided to increase the repo rate. Five out of six members of the MPC have given a decision in favor of increasing the repo rate. He said liquidity would improve as government spending increased. The demand in rural areas is showing improvement in FY23. Real GDP growth is estimated at 7 per cent for FY23.
How does repo rate work?
The Reserve Bank of India uses the repo rate to control the flow of money in the market. When the market is in the grip of inflation, the RBI increases the repo rate. The increased repo rate means that the banks which take money from RBI will be made available at the increased interest rate.