RBI Hikes Repo Rate Leading To Expensive Home Loans And EMIs

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Shakti Kanta Das, the Governor of the Reserve Bank of India (RBI) on the 8th of June, Wednesday, conducted a press conference. 

During the press conference, Mr. Das announced the repo rate and the reverse repo rate for loans.  The repo rate is the rate at which the RBI lends money to commercial banks.  Whereas, the reverse repo rate is the rate at which the RBI borrows money from banks. 

This is the second such increase of rates in the past five weeks, which could be a major issue for consumers, especially those planning home loans.

With inflation persistently hovering above the upper tolerance limit of 6%, the RBI’s six-member rate-setting panel voted unanimously to raise the lending rate of the repurchase (repo) rate by 50 basis points to 4.90%.  Furthermore, the Standing Deposit Facility rate and the Marginal Standing Facility Rate were accordingly adjusted higher by the same quantum to 4.65% and 5.15%,  respectively.

The increase follows a 40 bps rise in early May at an unscheduled meeting that kicked off the central bank’s tightening cycle.  The Monetary Policy Committee (MPC) raised its inflation forecast for the current fiscal (April 2022 to March 2023) to 6.7 per cent from April prediction of 5.7% but retained its economic growth projection at 7.2%.

Mr. Shakti Kanta Das said, “Inflation has steeply increased beyond the upper tolerance level.”  He further added, “Upside risks to inflation as highlighted in last policy meetings have materialised earlier than expected.”

With the new revisions, Food, energy and commodity prices remain elevated, but Home, auto and other loans EMIs would rise.   It also suggests that most of the excess inflation is due to global/supply-side factors.

The rate hike comes after 11 consecutive times of the RBI held interest rate at a record low of 4 per cent.

Besides Repo Rate revisions, other measures taken by the RBI are:

Permission to extend loans to residential housing projects.

Besides, UCBs have been permitted to extend doorstep banking services to their customers.

The limit for e-mandate on cards for recurring payments like subscriptions, insurance premia and education fees has been enhanced from Rs. 5,000 to Rs. 15,000 per transaction.

Rupay credit cards will be linked to Unified Payments Interface (UPI) just like debit cards.

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