RBI raises repo rate by 25 bps to 5.50%, loan EMIs set to rise
The MPC unanimously raised the repo rate from 5.25% to 5.50%, the first hike since February 2023, citing inflation, record crude prices and a weaker rupee.
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Against a backdrop of rising inflation, record crude oil prices and a falling rupee, the Reserve Bank of India (RBI) has delivered a major blow to borrowers. At its meeting today, the bank's Monetary Policy Committee (MPC) unanimously decided to raise the repo rate by 25 basis points (0.25%).
The decision takes the repo rate from 5.25% to 5.50%. It is the first increase in the repo rate in three and a half years, since February 2023.
The decision was announced officially after the three-day MPC meeting chaired by Governor Sanjay Malhotra. Following the hike, the Standing Deposit Facility (SDF) rate stands at 5.25%, while the Marginal Standing Facility (MSF) rate and the Bank Rate have moved to 5.75%. The committee has kept its stance 'neutral' for the period ahead, which has brought the market some relief.
Those who have taken home, car or personal loans at a floating interest rate will be hit directly by the decision. However, it does not follow that every bank's EMI rises on the same day the RBI raises the rate. The actual impact depends on each bank's lending rate and the reset cycle of the loan.
For example, if someone has taken a Rs 50 lakh home loan for 20 years at 8.50% and the rate rises by 25 basis points to 8.75%, the monthly EMI will go up from Rs 43,391 to Rs 44,186. That is an additional cost of about Rs 794 a month. If the rate stays unchanged for the next 20 years, the total interest paid will rise by more than Rs 1.9 lakh.
Take another example, a Rs 30 lakh home loan. If it was taken for 15 years at 8.50% and the rate becomes 8.75%, the EMI will rise from Rs 29,542 to Rs 29,983. Such a borrower will have to pay about Rs 441 more a month, an additional burden of about Rs 5,300 a year.
It is not only home loans. Car loan and personal loan borrowers will also be affected by the hike. On a Rs 20 lakh loan for five years, if the interest rate rises by 25 basis points from 10.50% to 10.75%, the EMI will go from Rs 43,000 to Rs 43,236. Customers will thus bear an additional burden of about Rs 240 to Rs 250 a month.
In short, with inflation, crude oil prices and the rupee's fall in the background, the MPC has taken the repo rate to 5.50%, and the effect will show in stages in the monthly instalments of everyone with a home, car or personal loan.
