RBI Monetary Policy Committee hikes repo rate for fifth consecutive time: Impact on borrowers | The Financial Express

RBI Monetary Policy Committee hikes repo rate for fifth consecutive time: Impact on borrowers

The RBI decision comes at a time when the economies across the globe are grappling with recessionary trends and fears of a global slowdown.

RBI Monetary Policy Committee hikes repo rate for fifth consecutive time: Impact on borrowers
The hike in the repo rate means that the cost of funds for banks will increase and that the banks will have to pay more for the money that they borrow from the central bank.

By Rachit Chawla

In another attempt to manage inflation, the Reserve Bank of India (RBI), for the fifth consecutive time, has announced a hike in the repo rate by 35 basis points (bps). The hike in the repo rate means that the cost of funds for banks will increase and that the banks will have to pay more for the money that they borrow from the central bank. This also indicates that eventually the banks will pass on the additional cost to the borrowers, which will lead to a significant rise in the equated monthly installments (EMIs) of the loans.

While the existing borrowers will be impacted with the increase in the interest rates, the RBI decision might also have an impact on the new borrowers, who might be a little reluctant towards availing a loan during this period. To reduce their loan tenors and EMIs, borrowers might now prioritize pre-payments to control their loan interest.

Also read: RBI’s Monetary Policy walking a tight rope: To be or not to be pro-growth?

The RBI decision comes at a time when the economies across the globe are grappling with recessionary trends and fears of a global slowdown, therefore, people are focusing more on calibrating their finances to adjust to the economic difficulties. The repo rate hike can majorly be on the housing loans, the interest rates of which has witnessed a significant rise during the earlier declared four consecutive repo rate hikes.

The impact on the housing loans can be considered as moderate till the interest rates on them remain in the single digits; preferably below 9.5 per cent. If the interest rates cross the single digit margin. there can be significant pressure on residential sales volumes in the months to come – especially in the affordable and lower mid-range housing segments. However, the housing loan market in the country being mostly end-user driven and as people mostly tend to ignore the lowest entry point and focus more on the benefits of house ownership, the interest rate-driven impacts on housing sales will not be very pronounced.

(Rachit Chawla, CEO, Finway FSC. Views are author’s own.)

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First published on: 08-12-2022 at 13:36 IST