The Reserve Bank of India (RBI) has increased the repo rate for the sixth consecutive time, by 25 bps to 6.50% with immediate effect, contrary to widespread speculation. Banks are anticipated to increase interest rates on retail loans following the RBI's most recent increase to the repo rate on February 8. Therefore, it is crucial for the average person to understand how this Reserve Bank of India (RBI) decision to raise the repo rate will affect their monthly EMI.
The amount of increases has gradually dropped over the course of the last three MPCs, from 50 bps to 35 bps to now 25 bps, notwithstanding the RBI's latest rate rise.
It is true that an increase in bank interest rates will have a direct impact on both bank depositors and new loan borrowers.
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Banks raise the interest rate on their consumer loans following an increase in the repo rate, and they typically extend the loan's term rather than increasing the monthly EMI after the loan interest rate hike.
In the event of a rate increase, the cost of borrowing goes up, and banks pass this cost on to borrowers, increasing the cost of EMIs. While a rate increase is a welcome news for fixed deposit holders who want to earn competitive rates.
All loan interest rates have already been increased by banks and other lending organisations. As a result of today's judgement, the field is now open for lenders to follow suit, raising borrowing costs inexorably.
Home loan EMIs:
If you took out a home loan for Rs 25 lakh at a rate of 7.05% per year for a 20-year duration, your EMI would rise by about Rs 758, from Rs 19,458 to Rs 20,216. The total amount of interest that would be due would be Rs 23,51,918 as opposed to Rs 21,69,819 now. For a loan of Rs. 50 lakh, the EMI will go from Rs. 38,915 to Rs. 40,433, and the total amount of interest due will be Rs. 47,03,840.
