EMIs to go up as RBI raises repo rate by 35 basis points to 6.25% – Times of India

The Reserve Bank of India (RBI) raised its key lending rate by 35 basis points on Wednesday as inflation continues to stay above the central bank’s tolerance band.
“MPC was of the view that further caliberated monetary policy action is warranted to keep inflation expectations anchored, break core inflation persistence and contain second round effects…,” said RBI governor Shaktikanta Das, while maintaining that the RBI would continue the withdrawal of accommodation.
Since banks link their lending rates with repo rates on various term loans, any change in the repo rate will have an effect on the EMIs as well. Every time the RBI raises the repo rate, the banks pass on the hike to consumers in the form of a higher rate of interest. The borrowers in turn are left with the option of extending the tenure of their loans or increasing the payout of the equated monthly installments.
Banks have been increasing their benchmark lending rates since May, hence pushing EMIs upward.
This fiscal, since May, RBI has already hiked the repo rate by 1.9% to tame multi-year high inflation which also led to a significant surge in home loan EMIs.
The central bank had last raised the key benchmark rate by 50 basis points on September 30. With this, the repo rate has been raised by 225 bps since April 2022.
“All consumer loans have got costlier this year. Borrowers are under the pressure of mounting interest and rising EMIs. Deposit rates, which haven’t kept pace with the repo rate hikes, are now also spiking. As of December 2, 38 banks offered FD rates of 7.00% or more on select tenors. Prepaying your home loan as and when funds are available can do wonders and shorten your ballooning loan tenor,” said Adhil Shetty, CEO, Bankbazaar.com.
For example, if you pay 5% of the loan balance every year, you can pay off your 20-year loan in 12 years. Prepaying one additional EMI every year can close your loan in just 17 years, and if you increase your EMI by 5% every year, you can finish your loan in less than 13 years, exxplained Shetty.
:A 10 per cent increase in your EMI every year can close your loan in about ten years. Lastly, you could also consider refinancing your home loan if your rate is not in sync with the market or your credit profile. A difference of 50 basis points warrants a look,” he added.
” The mortgage rates have increased in line with the MCLR and the cumulative growth in residential sales in the last six months has understandably begun showing some signs of slowing. The affordability of home buyers has also reduced by 10% since the beginning of this interest rate hike cycle,” said Shishir Baijal, Chairman and Managing Director, of Knight Frank India.
In an increasing interest rate scenario, home loan EMIs which are usually based on floating interest rates, will increase. This will stress the budgets of home loan owners and impact their discretionary spends.
Where the home loan rates have been linked to external benchmark rates, the rate hike has already been passed on. However, where home loan rates are tagged to an older interest rate regime such as MCLR, base rate or BPLR, the rate hikes will be passed on to the customers with a delay.
India’s CPI-based inflation in October stood at its three-month low of 6.7%. This is still higher than the RBI’s tolerance limit of 4-6%.
In its last policy statement on Sept. 30, the RBI’s Monetary Policy Committee projected GDP growth for the 2022/23 financial year (April-March) at 7% and retail inflation at 6.7%. It said its projections were based on an assumption of the Indian crude oil basket being priced at around $100 a barrel on average for the second half of the year but with prices having fallen, that could change.
India imports more than two-thirds of its oil requirements and movements in global crude have a direct impact on the country’s trade and current account balances as also its currency and domestic inflation.
Lower oil prices may also be countered by higher than expected food prices.
“Food inflation has been higher than expected on account of unseasonal rains and took away the inflation advantage,” said Madhavi Arora, lead economist at Emkay Global Financial Services.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *