RBI hikes repo rate by 50 basis points, EMIs to rise

The equated monthly instalments (EMI) on your home, car loans are all set to go up as the Monetary Policy Committee (MPC) aka the rate setting panel of the Reserve Bank of India on Wednesday announced a 50-basis-point hike in the repo rate to 4.9 per cent.

Repo rate is the rate at which the RBI lends money to commercial banks. This latest increase follows a surprise 40-bps repo rate hike on May 4. The increase in repo rate will impact both new and existing borrowers. With inflation likely to stay above the central bank’s tolerance limit, economists expect the RBI to front load rate hikes with another 50 basis points rate hike in the August policy.

The RBI also allowed cooperative banks to give out loans for residential projects, in a move widely expected to take off some of the pressure of rising cost of funds for developers in addition to increasing

Inflation has steeply increased much beyond the upper tolerance level (of 6 per cent). Upside risks to inflation as highlighted in last policy meetings have materialised earlier than expected.

SHAKTIKANTA DAS, RBI Governor

the limit of individual housing loans provided by them. One basis point is one hundredth of a percentage point. If the central bank increases repo rate, the cost of borrowing for retail and other loans by the banks, also rises. While the interest rates for fixed rate loans, like personal loans, remain same throughout the tenure, the floating rate loans like home loans and auto loans are linked to an external benchmark set by the Reserve Bank of India.