New Delhi: All home, auto and personal loans are set to become costlier in coming days as the Reserve Bank of India (RBI) is reportedly mulling to increase the repo rate by 35-50 basis points (bps). For the unversed, this will be RBI’s third consecutive policy rate hike to check elevated retail inflation. So far, the central bank had raised the short-term borrowing rate twice —by 40 basis points in May and 50 basis points in June. Notably, the existing repo rate of 4.9 per cent is still below the pre-Covid level of 5.15 per cent. The central bank sharply reduced the benchmark rate in 2020 to tide over the crisis created by the pandemic. Experts are of the view that the RBI would raise the benchmark rate to at least the pre-pandemic level this week and even further in later months. “We now expect the RBI Monetary Policy Committee (MPC) to raise the policy repo rate by 35 bps on August 5 and change the stance to calibrated tightening,” BofA Global Research report said, adding that the possibility of an aggressive 50 bps and a measured 25 bps hike cannot be ruled out either.
RBI MPC Meeting: What to Expect
- The Reserve Bank of India’s rate-setting panel — the Monetary Policy Committee — will meet for three days from August 3 to deliberate on the prevailing economic situation and announce its bi-monthly review on Friday.
- In a report, Radhika Rao, Executive Director and Senior Economist at DBS Group Research, said the RBI monetary policy committee is expected to stay focused on price stability over the next two quarters.
- Factoring in peak inflation in the July-September quarter, “we now expect a 35 bps hike in August, followed by three 25 bps for the terminal rate to level off at 6 per cent by end-FY23”, she opined.
- A research report by Bank of Baroda said that while the US Federal Reserve raised the rate by 225 bps in CY22, the RBI has hiked the repo rate by 90 bps. An aggressive rate hike by the Fed is feeding expectations that the RBI may also front load its rate hikes. However, conditions in India do not warrant an aggressive stance by the RBI, it added.
- The government has tasked the RBI to ensure consumer price index-based inflation remains at 4 per cent with a margin of two per cent on either side.
- Dhruv Agarwala, Group CEO of Housing.com, said while other banking regulators across the world, including the Fed, are raising rates aggressively, the situation in India does not warrant that kind of approach yet. “In our estimate, it is expected to be in the range of 20-25 basis points,” he added.
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How RBI Repo Rate Hikes Impact Your Loan EMI
If RBI hikes the repo rate, the outcome will have a direct impact on loan borrowers since banks and Non-Banking Financial Companies (NBFCs) are anticipated to raise lending rates. Borrowers would have to pay higher EMIs as banks and housing finance companies may raise their lending rates in response, resulting in an addition in your EMIs.
