The Reserve Bank of India's Monetary Policy Committee (MPC) announced a to 5.50% on Wednesday. The MPC assessed inflation, economic growth and other financial conditions before announcing its decision at the end of the meeting.
The critical three-day meeting came at a time when tensions in West Asia, higher crude oil prices and concerns over food inflation are putting pressure on the economy. The RBI last raised the repo rate in February 2023 by 25 basis points. It kept the rate unchanged through 2023-24 before starting its rate-cut cycle in 2025. The repo rate earlier stood at 5.25%.
Analysts widely expected the MPC to raise the repo rate by 25 basis points in the current review, mainly to control inflation. A rate hike means that borrowing is likely to become more expensive. With RBI's move, home loan borrowers with floating-rate loans may see their interest rates and EMIs rise. New home loan borrowers could also face higher borrowing costs.
ALSO READ: RBI MPC Outcome Live: Inflation Projection Hiked, Repo Rate Raised By 25 BPS To 5.5%
Impact on Home Loan EMIs:
A home loan floating interest rate is a variable borrowing rate that moves up or down based on changes in market benchmarks such as the repo-rate. Floating interest rates are generally 1% to 2.5% cheaper than fixed interest rate options, which is why many borrowers opt for it.
When the RBI hikes the repo rate, lending becomes expensive. Banks are pushed to increase lending rates, making home and other retail loans more expensive. For borrowers with floating-rate home loans, this may mean higher EMIs or a longer repayment period.
Since the RBI has hiked the interest rate by 0.25%, this means that banks are likely to increase their lending rates by a similar margin. For example, if your home loan was earlier at an interest rate of 8%, it could rise to around 8.25%, if the full increase is passed on to the borrower.
ALSO READ: RBI Raises FY27 CPI Inflation Forecast To 5.2% From 5%; Hikes Repo Rate To 5.50%
The exact impact on your particular home loan will likely be updated by your bank soon. It is recommended to keep checking their official sites for latest updates.
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