EMIs to go up, loans to get costlier, as RBI hikes repo rate by 25 basis points

The Reserve Bank of India (RBI) on Wednesday hiked the benchmark lending rate -- repo rate by 25 basis points to 6.50 per cent to bolster the fight against inflation. The repo rate is the rate at which the central bank lends money to commercial banks. The decision paves the way for public and private sector banks, housing finance companies and other lending institutions to hike the interest rate on all kinds of loans. When banks and lending institutions will hike interest rates correspondingly, eventually existing and new borrowers will have to dole out higher EMIs for their loans.

RBI Governor Shaktikanta Das in his address today said that the MPC decided 4:2 vote to remain focused on withdrawal of the accommodative policy. He added that policy rate at 6.5o per cent still trails the pre-pandemic level. With the latest increase, the benchmark lending rate has now hit a two-year high. Banks and lending institutions have already hiked interest rates on all kinds of loans after the RBI on May 4, 2022 increased the repo rate, the first such hike since August 2018. After today's decision, the stage is set for lenders to follow suit as the cost of funds is bound to rise.If you have borrowed a home loan of Rs 25 lakh at 8.25 per cent per annum for a tenure of 20 years and the interest is hiked to 8.50 per cent, your EMI will go up approximately by Rs 394 from Rs 21,302 to Rs 21,696. For Rs 50 lakh, the EMI will increase by Rs 788 from Rs 42,603 to Rs 43,391.Likewise, if the interest rate is increased from 9% to 10% on an auto loan of Rs 7.50 lakh with a tenure of 7 years, the EMI will become costlier by Rs 400. Similarly, for a person who borrowed a personal loan of Rs 5 lakh at 13% per annum for a tenure of 5 years, the EMI, in case the interest rate is increased to 15%, would go up by Rs 518 from Rs 11,377 to Rs 11,895.