Home / Money / Personal Finance /  How RBI's 50 bps repo rate hike could impact your EMI and investments

After the RBI's repo rate hike by 50 bps, retail banks are expected to raise their interest rate on various deposit schemes. However, at the same time, Indian banks are expected to raise interest rate in retail loans as well. So, it becomes important for a common man to know how this 50 bps repo rate hike decision by the Reserve Bank of India (RBI) is going to impact one's monthly EMI and savings.

Speaking on the impact of RBI's decision to raise repo rate, SEBI registered tax and investment expert Jitendra Solanki said, "A common man interacts with a bank in two ways. For investing in debt instruments via various bank saving schemes and secondly through retail loans offered by the bank. This repo rate hike is a welcome move for a depositor whereas it may not be a welcome step for a loan borrower. However, it has been found that banks generally increase lending rates after the repo rate hike but they don't follow this when it comes to the annual return they offer on their saving schemes. So bank account holders are advised to remain vigilant about their fresh investments and fresh loans and the interest rates offered by the banks."

Asking the existing loan borrowers to remain cautious about their loan interest rate, Pankaj Mathpal, MD & CEO at Optima Money Managers said, "It's true that rise in bank interest rates will impact directly to the new loan borrowers and bank depositors. However, it's not true that it won't impact existing loan borrowers. 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."

Mathpal went on to add that for increasing the monthly EMI, banks need to sign fresh agreement with the loan account holders whereas they can increase loan tenure without any fresh agreement. So, banks choose the smooth and convenient path. Therefore, it becomes important for the existing loan borrowers to remain vigilant about the loan interest rate of their bank and contact the bank official if they don't want to increase their loan tenure.

Cyrus Mody, Founder & Managing Partner, Viceroy Properties LLP said, “This is the fourth consecutive hike by the RBI. It will lead to a rise in the EMIs for homeowners as interest rates have cumulatively risen by 190 bps. But, a silver lining for India is that despite the rate hike we are witnessing demand for housing, unlike in the West and China where we can see a clear pricing pressure. With the fiscal situation improving, the Indian economy is expected to grow upwards of 7 per cent for FY23 - going forward, we expect demand for larger homes and high-quality real estate projects to stay intact despite the rate or price rises."

Impact on home loan EMI

Anuj Puri, Chairman at ANAROCK Group said, "With this repo rate hike, home loans will get dearer soon. This could impact residential sales to some extent during the upcoming festive quarter, particularly in the affordable and mid-range housing segments."

Amit Modi, President at CREDAI — Western UP chapter said, “The first and foremost impact of this decision would be the rise in interest rates for home loans. This would be a setback for the middle-income-group homebuyers as it would again cost them more than the previous annum."

Impact on bond yield

Gurvinder Singh Wasan, Senior Fund Manager and Credit Analyst — Fixed Income at JM Financial Asset Management Limited said, "As the policy was on expected lines, markets remained relatively flat post policy. Considering H2 FY 23 calendar announcement we witnessed slight steepening in the yield curve with 5Y Gsecs yield moving down and 10Y Gsecs staying flat at ~ 7.35%. Till clarity on bond inclusion emerges, we expect bonds to take cues from global events."

Disclaimer: The views and recommendations made above are those of individual analysts or personal finance companies, and not of Mint.


Asit Manohar

Chief Content Producer at Live Mint Digital Team
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.
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