Interest rates on term loans like home, car and personal are linked to external benchmarks including the repo rate. When RBI’s policy rate goes up, it also increases the cost of money for banks. Hence, banks raise interest rates which eventually fall on your pocket in the form of monthly installments (EMI) get expensive.
Last month RBI had increased policy repo rate Under the Liquidity Adjustment Facility (LAF) by 40 basis points to 4.40% with immediate effect. The rate hike was done to maintain adequate liquidity and deal with inflationary pressures.
Following the rate hike, several banks including SBI, HDFC Bank, ICICI Bank, Axis Bank, Bank of Baroda, Canara Bank and Kotak Bank also increased their MCLR (Marginal Cost of Funds Based Lending Rate) and other lending benchmarks.
What do experts expect from the upcoming RBI policy?
According to Dhananjay Sinha, MD and head-strategist, JM Financial Institutional Securities, the combination of external vulnerabilities and high fiscal deficit will complicate matters for the RBI as it struggles between multiple objectives of inflation control, settled currency and the GSC yield scenario . Our assessment suggests that RBI’s currency management due to rising US rates and a stronger dollar has translated into increased exchange rate tightness and reflects a decline in RBI’s foreign exchange reserves by USD 42 billion to USD 600 billion . Thus, in terms of constant rate and quantitative tightening by the US Federal Reserve, further rate hikes in India will result in liquidity crunch.
Further, Sinha said, inflation management is difficult as the real repo rate is deeply negative at -3.4% (4.4%-headline CPI 7.8%) and -2.6% assuming core inflation of 7%. Thus, to reach the neutral real rate of 1%, the RBI will have to significantly increase the repo rate and tighten liquidity. Assuming that core inflation softens to 6% over the next 12 months, short-term rates will need to be kept at 7% from the current level of ~4% (overnight call money rate). This would ideally be called an additional repo rate hike of around 200-250bp.”
“The RBI can expect a hike of at least 150 bp in the next 12 months and 40-50 bp on June 8,” Sinha said.
Indranil Pan – Chief Economist at Yes Bank said, “We see RBI increasing its May repo hike by 35 bps in June, followed by 25 bps each in August and September By this time, we expect global growth to soften. Enough to pull down commodity prices and thus provide some relaxation to the domestic inflation cycle as well. Thus we are looking at RBI’s repo rate in December Press the Pause button again after 15 bps insurance increase in the U.S. and analyze the effects of its rate hike cycle. 140 bps increase on growth before taking any further decision.”
On market sentiment towards RBI’s upcoming policy, Vinod Nair, Head of Research, Geojit Financial Services, said, “The market has hiked the repo rate and CRR by up to 50 bps, but with a view to stifle liquidity to cushion inflation. There will be any more stringent measures. Impact on market sentiment. Apart from monetary measures, RBI’s guidance on growth and inflation forecast will determine the market trend.”
What does the rate hike mean on your home loan EMI?
Ashish Khandelia, Founder, Sertus Capital, said, “We expect the repo growth to be between 40-50 bps in the upcoming MPC meeting and ~5.75% in future (where we were exactly 3 years back) or by the end of FY23. Will go upstairs.”
On home loans, Khandelia said, “Home loans grew in the 7% +/- range from ~6.5% earlier due to the last 40 bps growth in May. And by the end of this financial year, home loan rates will be at ~8% This is unlikely to derail the housing momentum, but it will certainly soften it. With rising prices, growth may slow slightly after FY12 to a record low in FY12. “
Here are the home loan rates of some of the leading banks:
state Bank of India:
SBI’s home loan rates have been increased from June 1. However, to avail the lowest interest rate in SBI, your CIBIL score matters.
Under SBI regular home loan, for credit score above or equal to 800 – the interest rate will be lowest at 7.05% with maximum benefit of 7.45%. Between 750-799 credit scores the interest rate is 7.15%, while on 700-749 credit scores – the interest rate is 7.25%. The interest rate for credit scores 650-699 will be 7.35%, while for credit scores of 550-649 – the rate will be 7.55%. The interest rate for NTC/No CIBIL Score is 7.25%.
HDFC bank:
The lender offers exclusive home loan rates. for loans up to 30 lakh, the interest rate is 6.75 to 7.2% for salaried women and 6.80 to 7.30% for others.
Meanwhile, for home loans from from 30.01 lakh 75 lakh, the interest rate is 7.00 to 7.50% for salaried women and 7.05 to 7.55% for others.
For above home loan 75.01 lakh, the interest rate of a salaried woman will be from 7.10 to 7.60% and others will pay from 7.15 to 7.65%.
ICICI Bank:
With effect from May 4, ICICI Bank revised its home loan rates linked to the repo rate (RR) of 4.4%.
For salaried borrowers, ICICI Bank home loans . until 35 lakhs the interest rate is 7.1% to 7.55%, whereas for loans up to from 35 lakhs 75 Lakh – The rate is 7.1% on the lowest front and 7.7% on the maximum.
For above home loan 75 lakhs, the minimum rate is 7.1% but the maximum can go up to 7.8%.