RBI Repo Rate Increase: Higher EMIs for Personal and Home Loans. Here Is How Much More You Will Pay

In an effort to combat persistently high inflation and support the currency, the Reserve Bank of India (RBI) raised the repo rate by 50 basis points to 5.4% on Friday. 

This is the third straight hike since May. Notably, the interest rate was raised to the pre-pandemic level by increasing the repurchase rate.

The repo rate represents the rate at which commercial banks borrow funds from the Reserve Bank of India for the uninitiated. The cost of borrowing for retail loans and other loans made by banks increases if the RBI raises the repo rate.

What is RBI repo rate and why is it increased?

The banks would then raise the interest rates on different loans to pass along the growing cost to the borrowers. As a result, borrowers of a variety of loans, such as personal loans and house loans, would pay more in equivalent monthly payments (EMIs).

The RBI's most recent rise in the repo rate brings the overall increase to 1.4%. The borrowers of both new and current loans will be impacted by this increase.

Home Loan EMI: How much you will pay more?

After the RBI's August Monetary Policy, the interest rate for borrowers who took out house loans before April 2022 is projected to rise from 6.5 to 7 percent to roughly 8%.

In April 2022, if a person has previously taken out a house loan for Rs 30 lakh at 7% for a 20-year term, the EMI would increase to Rs 25,845 from Rs 23,259. There would be a significant increase in monthly EMIs of Rs 2,586.

When announcing the rate increase, RBI Governor Shaktikanta Das made no mention of a potential shift in policy or postponement of the upcoming policy, which is scheduled in late September.

However, the central bank reaffirmed the GDP growth forecast at 7.2% for the current fiscal year ending March 31, 2023, and kept the year-over-year inflation expectation at 6.7%.