RBI raises repo rate by 25 basis points to 5.50%; loans to get costlier, FD rates may rise

The Reserve Bank of India (RBI) has raised the repo rate by 25 basis points to 5.50 per cent. The decision had been awaited, and feared, for some time. It is expected to affect borrowers and depositors in different ways.

For borrowers, the decision is a jolt. A higher repo rate means loans become costlier and EMIs rise. Those with car loans, home loans or personal loans may now have to spend more on EMIs than before.

For investors, the mood is being described as festive, as the higher repo rate could bring them substantial gains. For those planning to open a fixed deposit (FD) or who already hold one, the news could be relevant and a relief. The decision may also affect bank interest rates, as banks could raise FD rates going forward. If banks raise their FD rates, new investors could earn more interest than before.

The biggest question is when banks will raise FD rates. According to the report, banks may begin raising FD rates within the next few days to a few weeks. With several major festivals coming up in October and November, banks may launch special FD schemes and announce higher rates during the festive season.

Those considering a large FD deposit may wish to wait a few weeks until banks raise their rates, so that they benefit from the higher interest.

Borrowers may face difficulty. Interest rates on car, personal and home loans will go up, and their EMIs may rise too. While FD rates are likely to rise on one side, the decision could weigh on the finances of borrowers on the other.