Stories
Repo Rate Hike: How Much Will Your Monthly EMI Increase?
- •The Reserve Bank of India has hiked the repo rate by 0.25 percent to 5.50 percent after three years to control rising inflation.
- •The rate hike serves as a foundational guide for all loan and deposit interest rates across the country.
- •Commercial banks will pass on the increased borrowing costs to customers, resulting in higher home, car, and personal loan EMIs.
- •For a 50 lakh rupee home loan over 20 years, a 0.25 percent hike adds about 761 rupees to the monthly installment or extends tenure by nearly a year.
- •Borrowers with a CIBIL score above 750 may negotiate lower profit margins and better interest rates from banks.
Key Questions Answered
The Reserve Bank of India has hiked the repo rate by 0.25% to reach 5.50% after three years of no increases. This decision was taken to control rising domestic inflation, address climbing international crude oil prices, manage the depreciation of the Indian Rupee, and navigate global trade uncertainties.
When the RBI raises the repo rate, commercial banks face higher borrowing costs and pass this financial burden onto customers by increasing interest rates on floating-rate loans like home, car, and personal loans. For example, a 0.25% rate hike on a 50 lakh rupee home loan over a 20-year term increases the monthly installment or extends the repayment tenure.
Since 2019, banks have issued loans under the External Benchmark Lending Rate system, which is directly linked to the repo rate. Under this practice, loan interest rates are revised at least once every three quarters or three months, meaning the new rate hike automatically takes effect on the customer's next interest reset date.
