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EMIs start rising as RBI ups key rate 50bps; fourth hike in five months

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MUMBAI: Reserve Bank of India's monetary policy committee on Friday voted 5-1 to increase its key policy rate by 50 basis points, the fourth rise in five months. The latest repo rate hike, aimed at reining in inflation, will make all borrowings, home loans included, more expensive. Several banks, led by SBI have already hiked lending rates.

For those who took home loans before the May 4, 2022 rate hike, this is a major shock. Banks which had pushed rates to 6.6% will now re-price the loan at 8.5%. Borrowers who don't have room to extend tenure will see EMIs rise by 15%.

RBI governor Shaktikanta Das , announcing the increase in the repo rate to 5.9%, hinted more rate hikes were to come. He said that after adjusting for inflation, the repo rate continues to trail 2019 levels.


SBI, others hike loan rate by 50bps

SBI & BoI hiked loan rates after the RBI raised the benchmark interest rate. The hike has been effected in their benchmark rate linked to the repo rate. Even HDFC hiked the lending rate by 50bps effective Saturday. ICICI also hiked rates, effective Friday itself. With the increase, EMIs will go up for those with loans on external benchmark-based lending rate (EBLR) & repo-linked lending rate (RLLR).


Lenders likely to come out with festive offers

RBI governor Shaktikanta Das said on Friday that after adjusting for inflation, the repo rate continues to trail 2019 levels. The rate hike was widely anticipated as the RBI is the latest among the central banks worldwide that have followed in the footsteps of the US Fed , which hiked interest rates by 75bps (100bps = 1 percentage point) on September 21.

"Consumer price inflation remains elevated and above the upper tolerance band of the target due to large adverse supply shocks, some firming up of domestic demand, and the spillovers from global financial markets," said Das.

For new borrowers, the rates might not go up proportionately as banks can revise their spreads to charge lower rates. As the cost of funds for banks has not gone up, lenders are likely to announce special offers for the festive season. Lenders said that while higher rates do have an impact on demand, the overall sentiment is positive. The sensex gained as the policy was on expected lines and the rupee also firmed up.

RBI officials also exuded confidence on the state of the economy. When asked whether the RBI was preparing for a soft landing, RBI deputy governor Michael Patra said, "Soft landing is for the governments of advanced economies, for India it is take-off". While the RBI cut the growth projection for FY23 to 7% from 7.2%, India continues to be among the fastest-growing major economies in the world. "The encouraging growth in the consumption pattern will continue to have a positive rub-off on the home loan demand aided by festive sentiments," said Y Viswanatha Gowd, MD & CEO, LIC Housing Finance.

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