MUMBAI: Home loan equated monthly instalments (EMIs) of existing borrowers are set to increase as the Reserve Bank of India (RBI), on Wednesday, hiked repo rate by 25 basis points (bps). This increase will turn personal, home, auto and other retail loans costlier for the new borrowers.
As widely expected, RBI Governor Shaktikanta Das, while unveiling the last bi-monthly monetary policy of 2022-23, announced to raise repo rate, the rate at which the RBI lends money to commercial banks, to 6.50% from 6.25% in its fight to tame inflation. As cost of funds will rise for the banks after this hike, they will pass this higher cost to borrowers.
The latest hike, sixth such hike since May 2022, in the repo rate will make home loan EMIs expensive by around 2-4%. The EMI for 20-year home loan for Rs 50 lakh at 9.25% interest rate is Rs 45,793. After 25 bps increase, at 9.50% interest, the new EMI will be Rs 46,607, resulting in Rs 814 rise in monthly outgo.
The rise in EMIs for existing home loan borrowers will be higher if consider repo rate hikes by the RBI since May last year. The central bank has increased repo rate by 250 bps in the past nine months. The EMI for 20-year home loan for Rs 50 lakh at 7% interest rate was Rs 38,765 whereas the new EMI at 9.50 % will be Rs 46,607, reflecting an increase of Rs 7,842 rise in monthly outgo. If the loan amount is Rs 1 crore, then EMI will increase by Rs 15,683.
On the positive side, the hike in repo rate is a good news for savers as the banks are expected to increase the interest rates on fixed deposits to attract depositors to fund the credit growth. Apart from raising repo rate, the RBI revised its projections for growth and inflation.
The central bank has revised down the inflation projection to 6.5 % for 2022-23 against previous forecast of 6.7 % and expects GDP growth for 2023-24 to be 6.4% while growth for 2022-23 has been pegged at 7 %. Amid volatile global developments, the Indian economy remains resilient, said RBI Governor. “Available data for Q3 and Q4:2022-23 indicate that economic activity in India remains resilient. Urban consumption demand has been firming up, driven by a sustained recovery in discretionary spending, especially on services, such as travel, tourism and hospitality.
Excluding Wednesday’s hike, the central bank has raised repo rate by 225 bps since April 2022 in a bid to tame inflation, which has stayed above its comfort zone of 2-6 percent. Headline CPI inflation has moderated by 105 basis points during November-December 2022 from its level of 6.8 percent in October 2022. “Headline inflation has moderated with negative momentum in November and December 2022, but the stickiness of core or underlying inflation is a matter of concern,” said RBI Governor.