It was believed that the central bank may once again increase the repo rate to reduce inflation. Central banks around the world have raised interest rates to control inflation. RBI has increased the repo rate by 190 basis points in May. The US Fed Reserve had increased interest rates by 75 basis points for the third time in a row, after which the pressure on the rupee increased. Also, retail inflation had increased again in August. In such a situation, economists believed that the RBI may announce a hike in the repo rate on Friday.
Borrowing cost will increase
An increase in the repo rates will increase the cost of borrowing. This is because an increase in the repo rate will increase the borrowing cost of banks. Banks will pass it on to the customers. This will make taking a loan expensive. This will also affect the sale of houses. Builders have already increased the price of real estate due to the increase in the cost of raw materials. This will affect the recovery of the real estate market which is already slowing back on track.
What will be the impact on home loan
The new retail loans that banks offer are linked to an external benchmark. In most cases, it is linked to the repo rate. This is the reason that any change in the repo rate affects the interest rate of the home loan. That is, an increase in the repo rate will increase your home loan installment. Also, it will also have an impact on old home loans linked to MCLR, Base Rate and BPLR.
Loan installment will increase
If a person has taken a home loan of Rs 30 lakh in April 2022 for 20 years at 6.95 per cent interest, then his installment will now be Rs 25,751 at 8.35 per cent. After the increase in the repo rate, if the bank increases the lending rate by 25 basis points, then the interest rate will reach 8.60 percent. This will increase his installment to Rs 26,225. Similarly, if a person has taken a home loan of Rs 1 crore in April 2022 at 6.9 per cent interest for 20 years, then his installment will be Rs 76,931. But after increasing the repo rate by 50 basis points, it will become Rs 87,734.
Other loans will also become expensive
Apart from home loans, vehicle loans, education loans, personal loans and business loans will also become costlier. Due to increase in boring cost, common people avoid unnecessary expenditure, which reduces demand. However, the increase in the repo rate will benefit those customers who have made FD.
Source: navbharattimes.indiatimes.com
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