Home / Money / Personal Finance /  How RBI's 25 bps repo rate hike could impact your loan EMIs

As widely speculated, the Reserve Bank of India (RBI) has hiked the repo rate for the sixth time in a row, by 25 bps to 6.50% with immediate effect. After the RBI's latest repo rate hike on February 8, banks are expected to raise interest rate in retail loans. So, it's of utmost importance for a common man to know how this repo rate hike decision by the Reserve Bank of India (RBI) is going to impact one's monthly EMI.

Loan EMIs to go up

It's true that rise in bank interest rates will impact directly to the new loan borrowers and bank depositors. After the rise in repo rate, banks hike interest rate on their retail loans and after the loan interest rate hike, they usually increase tenure of the loan instead of monthly EMI.

Archit Gupta, Founder and CEO, Clear said since the Repo rate is hiked the banks will now have to pay a higher amount of interest to the RBI which in turn shall be collected from the retail/ corporate borrowers of the banks. 

This would result in higher interest outflow on loans taken from the banks. Thus the loans in general will become costlier by 1-2%

By how much banks pass on the benefit of the February policy rate hike on their FDs will be keenly watched.

In its December monetary policy review, the central bank raised the key benchmark interest rate (repo) by 35 basis points (bps) after delivering three back-to-back increases of 50 bps.

Since May last year, the RBI has increased the short-term lending rate by 225 basis points to contain inflation, mostly driven by external factors, especially global supply chain disruption following the Russia-Ukraine war outbreak.

At present, the repo rate is at 6.25%. For FY23, RBI's first rate hike was 40 bps in May, followed by three consecutive rate hikes to the tune of 50 bps each between June to October, and then some softening to 35 bps in December policy.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Recommended For You
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout