Home, Car and Personal Loan will be expensive, your EMI will increase. RBI Repo Rate Hike

RBI Governor Shaktikanta Das on Wednesday announced an increase of 50 basis points in the repo rate. Soon various banks may increase the EMI of home loan, personal loan and car loan. RBI Governor said that the Monetary Policy Committee has decided to increase the repo rate by 50 basis points with the consent of all.

New Home Loans Linked to External Benchmarks

According to the Reserve Bank's rules, now the home loans of banks are linked to the Marginal Cost Lending Rate (MCLR) and Repo Linked Lending Rate (RLLR). In 2019, RBI had asked all banks to link new home loans to external benchmarks, as banks were not passing on the full benefit of RBI's reduction in repo rate to customers. Let us tell you, during the Corona epidemic, the Reserve Bank made a major cut of 115 basis points (0.75 percent in March 2020 and 0.40 percent in May 2020) in interest rates to keep demand and growth.

Apart from this, the central bank had instructed banks to link all types of retail loans and personal loans also to an external benchmark. For this, banks were given the option of RBI repo rate, 3- or 6-month government treasury bill rate or any other benchmark market interest rate published by Financial Benchmarks India Private Limited (FBIL). The old lenders have the option to transfer the loan to the benchmark linked rate or continue with the old regime.

Reason for increasing repo rate

Rising inflation was blamed for this tough move of the Reserve Bank. The Consumer Price Index (CPI) based inflation has been increasing continuously since October 2021. Retail inflation reached an eight-year high of 7.79 per cent in April 2022. A report by HDFC Bank Treasury Research Desk said that RBI may increase policy rates by 0.25 percent. Also, RBI may change the inflation forecast citing changes in global and domestic price pressures. Earlier it was estimated to be 5.7 percent but now it can change to 0.70-0.80 percent.