reserve Bank of India (RBI) will announce the decision of its bi-monthly monetary policy committee According to a survey conducted by News18.com, India’s central bank is expected to increase the repo rate by 25-50 basis points on August 5. “The RBI MPC Rates are likely to increase by 35 basis points in August’s policy announcement, however, I do not expect a major increase like other major central banks such as the United States Federal Reserve or the European Central Bank,” said Ravi Subramaniam, managing director and Chief Executive Officer, Shriram Housing Finance. “This is because in the absence of any new shocks, in the economic situation” India There has been a marginal improvement and hence there is no need for an aggressive rate path,” he said.
RBI MPC decision today: How it will affect your home loan, car loan
Repo rate refers to the rate at which commercial banks borrow money from the Reserve Bank of India. If the central bank raises the repo rate, the cost of borrowing by banks for retail and other loans also increases. Banks will pass the burden of rising cost on the borrowers by increasing the interest rates of loans. As a result, home loan borrowers will have to pay more in the form of Equated Monthly Installments (EMIs).
The Reserve Bank of India has raised repo rates by 90 basis points twice since May. When RBI hikes the repo rate, banks keep EMIs stable for existing borrowers and extend the tenure of the loan. This will affect the interest on the loan. “Around 40 per cent of lending rates in the banking system are linked to external benchmarks, as the RBI hikes the repo rate, the cost of borrowing will continue to rise. Retail loans like home loans are mostly linked to external benchmarks and will see pass-through of higher policy rates. Suvodip Rakshit, Senior Economist, Kotak Institutional Equities, said, “The private sector accounts for a relatively large proportion of loans among banks that are under the External Benchmark Based Lending Rate (EBLR) regime.
“The MPC is expected to vote unanimously for a 35 bps hike in policy rates in August 2022. The domestic macro-economy has not changed much since the last policy and the suggested higher rate environment is priced in. Q1 Inflation is puzzling. On the positive side of the moderation, however, underlying core prices remain at around 6%+, above central bank comfort. I do not, however, expect any major uptick, as it is in productive infrastructure sectors, such as power and will go against the obvious reforms in transport, etc., which are directly inputs to production in productive sectors, i.e. agriculture, manufacturing, etc. and have the most forward and backward linkages in the economy,” Kamra said.
Elaborating on the rate hike, Pranjal Kamra- Chief Executive Officer, Finology Ventures said, “The rate hike means an increase in the cost of funds for banks and financial institutions. In turn, banks will pass this cost on to borrowers by increasing their lending rate. Hence, the EMI amount for borrowers of all retail floating rate loans like home loans, car loans and gold loans will increase. ,
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