NEW DELHI: Home loan EMI is set to increase, with Reserve Bank of India increased the main repo rate by 50basis points (bps) to 5.4% in an attempt to curb domestic inflation.
This is the third straight increase by the central bank in four months and is expected to increase borrowing costs for businesses and individuals.
Amid mounting inflationary pressures in India, the RBI raised its policy-return rate by 40% in May, followed by another 50-basis-point hike in June. The repo rate. policy is currently at 5.4%.
The government has tasked the RBI to ensure CPI-based inflation remains at 4% with a margin of 2% on each side.
All six members of Monetary Policy Committee (MPC), headed by the governor of RBI Shaktikanta Dasunanimously voted for the latest rate hike.
Global geopolitics and rising commodity prices suggest that inflation is likely to remain above the 6% threshold for the first three quarters of 2022-23. Twice in the past, the repo rate has been increased. The third increase implies costly home and personal loans. Parents who pay education loans for their children will also feel the pressure of higher interest rates. In addition, your car and two-wheeler loans will become expensive in the future.
RBI’s action automatically pushes up mortgage costs as more than 90% of bank home loans are linked to repo rates. While deposit rates will also increase, the increase is expected to be slower as the banking system is still suffering from the pandemic stimulus. The bad news for borrowers is that this is not the last rate hike by the RBI. Crisil expects the RBI to raise rates by one xx basis points this financial year – a view echoed by most economists. This means that by the end of March, interest rates will be half a percentage point higher than pre-pandemic levels. The RBI cut the repo rate in March 2020 to ease the impact of the covid-induced lockdown, and maintained the status quo of benchmark interest rates for nearly two years before raising it on May 4, 2022.
“The best way to go forward to a borrower is to use a higher EMI or prepay regularly. There are several options to choose from, from as little as one additional EMI per year to as much as 5% of the principal outstanding. every year to reduce the burden of higher interest. Choose the alternative that works best for you, taking into account your financial situation and debts,” Adhil ShettyCEO, Bankbazaar.com.
In its June policy, the RBI decided to continue focusing on accommodation recovery to ensure that inflation remains within its target for the future while supporting growth. In its June 2022 policy, RBI forecasts inflation at 6.7% in 2022-23, with Q1 at 7.5%; Q2 was at 7.4%; Q3 at 6.2%; and Q4 is 5.8%, with risks equally balanced.
India’s Consumer Price Index (CPI) inflation stood at 7.01% in June 2022, down slightly from 7.01% in May. This year, in April, Inflation peaked at 7. ,79%.
Point to note: inflation has maintained above the RBI upper limit of 6% for the sixth straight month.
This is the third straight increase by the central bank in four months and is expected to increase borrowing costs for businesses and individuals.
Amid mounting inflationary pressures in India, the RBI raised its policy-return rate by 40% in May, followed by another 50-basis-point hike in June. The repo rate. policy is currently at 5.4%.
The government has tasked the RBI to ensure CPI-based inflation remains at 4% with a margin of 2% on each side.
All six members of Monetary Policy Committee (MPC), headed by the governor of RBI Shaktikanta Dasunanimously voted for the latest rate hike.
Global geopolitics and rising commodity prices suggest that inflation is likely to remain above the 6% threshold for the first three quarters of 2022-23. Twice in the past, the repo rate has been increased. The third increase implies costly home and personal loans. Parents who pay education loans for their children will also feel the pressure of higher interest rates. In addition, your car and two-wheeler loans will become expensive in the future.
RBI’s action automatically pushes up mortgage costs as more than 90% of bank home loans are linked to repo rates. While deposit rates will also increase, the increase is expected to be slower as the banking system is still suffering from the pandemic stimulus. The bad news for borrowers is that this is not the last rate hike by the RBI. Crisil expects the RBI to raise rates by one xx basis points this financial year – a view echoed by most economists. This means that by the end of March, interest rates will be half a percentage point higher than pre-pandemic levels. The RBI cut the repo rate in March 2020 to ease the impact of the covid-induced lockdown, and maintained the status quo of benchmark interest rates for nearly two years before raising it on May 4, 2022.
“The best way to go forward to a borrower is to use a higher EMI or prepay regularly. There are several options to choose from, from as little as one additional EMI per year to as much as 5% of the principal outstanding. every year to reduce the burden of higher interest. Choose the alternative that works best for you, taking into account your financial situation and debts,” Adhil ShettyCEO, Bankbazaar.com.
In its June policy, the RBI decided to continue focusing on accommodation recovery to ensure that inflation remains within its target for the future while supporting growth. In its June 2022 policy, RBI forecasts inflation at 6.7% in 2022-23, with Q1 at 7.5%; Q2 was at 7.4%; Q3 at 6.2%; and Q4 is 5.8%, with risks equally balanced.
India’s Consumer Price Index (CPI) inflation stood at 7.01% in June 2022, down slightly from 7.01% in May. This year, in April, Inflation peaked at 7. ,79%.
Point to note: inflation has maintained above the RBI upper limit of 6% for the sixth straight month.
