Higher rates lead to higher lending rates, EMIs
In the last two policies, the RBI had increased the repo rate by 90 basis points. Many banks have increased their loans from May to July this year. Many lenders link their lending rates to the repo rate.
All eyes are now on RBI’s monthly policy release on Friday. The Reserve Bank is expected to increase the repo rate to reduce CPI inflation for the sixth consecutive month. When inflation comes back to the table, its impact will be felt on both borrowers’ creditworthiness and loans. Generally, when the RBI raises the repo rate, the cost of funding for lenders like banks goes up. Inflation means that banks have to pay more for the money they borrow from the Reserve Bank. As a result, banks increase the interest on the loan and disburse money to borrowers, thereby increasing the EMI. Both new and existing borrowers will see their interest rates rise.
In the last two policies, the RBI had increased the repo rate by 90 basis points. The first ride was 40 basis points in May and then 50 basis points in June.
RBI rate hike: Home buyers will be affected by the hike in loan rates.
The Reserve Bank of India (RBI) has increased the repo rate by 50 basis points following the outbreak of Covid-19. Indeed, many good products won’t hurt demand, but experts say banks will raise lending rates, hurting sentiment among middle-class home buyers.