RBI Hikes Repo Rate, Home Loan EMIs Expected to Rise

New Delhi, October 7 (Daily Kiran) : The Reserve Bank of India (RBI) has raised the repo rate by 25 basis points, increasing it from 5.25% to 5.50%. This adjustment is likely to impact borrowers with floating interest rate home loans, leading to higher loan costs. Floating rate home loans are typically linked to the repo rate and other market benchmarks. Consequently, any changes in the RBI's policy rates directly affect these loans.Most retail home loan customers in India prefer floating rate options, as they are generally cheaper by 1% to 2.5% compared to fixed-rate loans. When the RBI raises the repo rate, banks typically respond by increasing their lending rates, which can result in higher Equated Monthly Installments (EMIs) for existing borrowers or extended repayment periods. For instance, if a borrower is currently repaying a home loan at an 8% interest rate, the new rate could rise to approximately 8.25%.In such scenarios, banks have two main options: they can either increase the borrower's EMI or extend the loan tenure while keeping the EMI unchanged. The final outcome will depend on the bank's policies and the terms of the borrower's loan agreement. Experts advise customers to monitor their bank's official communications, as different banks may revise rates and implement changes in various ways. This decision comes amid rising tensions in West Asia, crude oil prices surpassing $100 per barrel, food inflation, and global financial uncertainties that are putting pressure on the economy.In this meeting, the RBI not only decided to increase the repo rate but also shifted its monetary policy stance to "calibrated tightening." RBI Governor Sanjay Malhotra has indicated that there is unlikely to be any reduction in interest rates in the near future. Future policy actions may either involve further rate hikes or maintaining the current rates, depending on economic conditions.