RBI repo rate hike may increase the borrowing cost for bank customers if lenders raise their interest rates following a policy change.
According to an SBI Research report, the Reserve Bank of India may increase the repo rate by 25 basis points in October.
The report also expects another 25 basis point increase in December. If both increases take place, the repo rate could rise by a total of 50 basis points by the end of December.
RBI Repo Rate Hike Could Affect Borrowers
The repo rate is the rate at which the RBI lends money to commercial banks. Changes in this rate can influence borrowing costs across the banking system, although the impact on individual loans depends on how each bank adjusts its lending rates.
Borrowers with floating-rate loans could be affected if banks increase their lending rates. Their EMI could rise, or the loan repayment period could change, depending on the terms of the loan and the lender’s response.
People who have taken loans for a house, car or education should therefore check whether their loan carries a floating or fixed interest rate.
Why Could the RBI Increase Rates?
SBI Research has pointed to rising crude oil prices as an important concern. Tensions in the Middle East have pushed crude oil prices above $100 per barrel, according to the report.
If crude oil prices remain elevated, it could put additional pressure on inflation. SBI Research expects inflation to reach 6.5 percent or higher during October-November if crude prices stay high.
Higher inflation can create challenges for monetary policy and may influence the RBI’s decisions on interest rates.
What Happens to EMI After a Rate Hike?
A repo rate increase does not automatically mean that every borrower’s EMI will rise by the same amount. The impact depends on the bank’s lending rate, the type of loan and its repayment terms.
For floating-rate borrowers, a rise in the applicable interest rate could increase the monthly EMI or extend the repayment period. Borrowers should contact their bank to understand how a potential rate change could affect their specific loan.
What Borrowers Should Check Now
Existing borrowers should first check the current interest rate on their loan and confirm whether it is fixed or floating. They can also ask their bank how a possible increase in interest rates would affect their EMI.
If the EMI increases, borrowers should review their monthly budget and plan for the additional payment.
Those planning to take a new loan should compare interest rates and EMIs offered by different banks before making a decision.
The repo rate increases mentioned in the SBI Research report are expectations and not a confirmed RBI decision. The actual rate decision will depend on the RBI’s assessment of inflation and other economic conditions.
