NEW DELHI: Home loan EMIs are set to rise as the Reserve Bank of India has increased the repo rate, at which it lends to commercial banks, by 50 basis points (0.5%) on Friday. With this, the floating home loan rates, which are linked to repo rates, will immediately rise by 50 bps.
Since May this year, RBI has raised the repo rate by 190 bps to 5.9% resulting in home loan rates shooting up from 6.65% to 8.55% in five months. A 50-basis point increase in home loan rates would cost Rs 1,600 more in EMI for a Rs 50-lakh loan with a 20-year tenure, or Rs 300 more on a Rs 1 lakh loan amount.
What is more worrying for borrowers is that RBI is not done with rate hikes. Since the central bank has not changed its inflation estimate for the full year at 6.7%, most analysts expect another 35-50 bps hike in rates in December 2022.
According to the RBI policy statement, inflation is likely to be above the upper tolerance level of 6% through the first three quarters of 2022-23, with core inflation remaining high. “We believe that a 35 bps rate hike in December looks imminent,” said Soumyakanti Ghosh, group chief economic adviser, State Bank of India.
Another 35-50 basis point increase may take the home loan rates to 9% or more. Such high levels were last seen in 2018. Friday’s rate hike may, however, bring some joy for depositors as FD rates are languishing below the 6% level across maturities. However, slow transmission of hike in repo rates to deposit rates means it may take some time before deposit rates breach the 6% mark. Currently, FD rates range from 5.5% to 5.7% across all maturities.
Meanwhile, RBI has lowered the FY23 GDP growth estimate from 7.2% to 7%. The equity markets, however, showed resilience despite the rate hike and lowering of GDP estimate. The Sensex and Nifty rose 1.8% as RBI rate hikes were in line with market expectation.
