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February 08, 2023

EMIs to go up, loans to get costlier as RBI hikes repo rate by 25 basis points to 6.5 per cent

Ritu Srivastava

As the Reserve Bank of India increased the repo rate by 25 basis points to 6.5 percent today, get ready to pay extra for your EMI. The repo increase will increase the cost of retail loans including home, auto, and personal loans among others, and borrowers must be prepared for increased monthly installment payments or tenure extensions, or both.

The decision of the monetary policy committee, which was approved by a vote of 4 out of 6 members, was announced by Governor Shaktikanta Das.

This year's first Monetary Policy Statement was released at this time.

After three consecutive 50 bps rate increases, the RBI increased its benchmark lending rate by 35 bps in December and declared that its fight against inflation was far from done.

The marginal standing facility rate and the bank rate will remain unchanged at 6.75% and 6.25%, respectively.

The MPC also made the decision to concentrate on removing accommodation in order to maintain target inflation going forward while promoting growth.

In order to ensure that inflation stays within the tolerance zone and gradually approaches the target, the MPC will continue to keep a close eye on the changing inflation outlook, RBI Governor and MPC Chair Shaktikanta Das said when announcing the policy choices.

The Reserve Bank has raised the short-term lending rate by 225 basis points since May of last year in an effort to keep inflation under control. As a result, between May 2022 and February 2023, the repo rate increased generally by 2.5%, from 4% to 6.5%.

The GDP growth forecast for FY23 has been increased by the RBI from 6.8% to 7%. The growth rate was estimated to be 6.4% for FY24.

The retail inflation rate decreased to 5.72% in December, remaining for a second month within the RBI's comfort zone of 2%-6%. In November it was 5.88%, and in October 2022 it was 6.77%.

Inflation has been declining, according to RBI Governor, and the "global economy does not appear so dismal currently." Retail inflation is anticipated to average 5.7% in Q4. However, core inflation is still "sticky." The inflation forecast for FY23 has remained at 6.5%. The inflation rate for FY24 has been set at 5.3%.

"The US Federal Reserve has slowed the rate of growth of its benchmark interest rate and the easing of retail inflation are both contributing factors to today's slower rate hike. After providing three consecutive rises of 50 bps, the apex bank increased the important benchmark interest rate (repo) by 35 basis points (bps) in December. Existing borrowers will be burdened by the latest increase, while new borrowers will be required to borrow money at higher interest rates. It would increase the cost of retail loans like home, auto, and personal loans among others, and consumers must be prepared for increased monthly installment payments or term extensions, or both "Adhil Shetty, the man behind BankBazaar.com, stated.


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