RBI hikes repo rate: Home loan interest rates to go up, bad days ahead for borrowers!

RBI hikes interest rates: Home loan interest rates may go up again for borrowers soon as the Reserve Bank of India (RBI) has increased repo rate again

RBI hikes repo rate: Home loan interest rates to go up, bad days ahead for borrowers!
Repo rate hike to negatively impact home loan borrowers. Representative image

It seems, the bad days are ahead for home loan borrowers. Home loan interest rates may go up soon for borrowers as the Reserve Bank of India (RBI) has increased the repo rate once again today. The central bank has increased the repo rate by 50 bps.

Many home loan borrowers were already feeling the pinch of repo rate hikes in the previous three monetary policy announcements since May 2022. Another policy rate hike will further increase their woes amid prevailing high inflation.

The home loan interest rates offered by many banks are reflecting the policy rate hikes by RBI since May 2022. While RBI had increased the repo rate by 140 points from May, there has been a corresponding jump in home loan interest rates, depending on the type of benchmark selected by the lender.

In some cases like SBI, the lending rate has gone up by up to 70 basis points. It means if an SBI customer was paying home loan interest at 7% in May 2022, s/she is now paying 7.70%. In the case of repo-rate linked home loans, the interest rates required to be paid by borrowers have gone up even higher.

Repo Rate Hike Impact on Home Loan Interest Rate: What experts say

Experts say that banks will now be forced to pass on the increased cost to borrowers. However, this may not happen in the ongoing festival season. 

“The 50-basis point hike in repo rate to 5.9% was expected as the RBI intensifies its efforts to tame inflation. While banks will eventually be forced to pass on this increased cost to borrowers, the possibility of this happening during the ongoing festive season is low. Considering that a large number of home buyers in India make their purchase decision during this time of the year, financial institutions would not like to dampen the festive spirit by effectuating a rate hike immediately,” said Dhruv Agarwala, Group CEO of, & 

“Banks are expected to continue raising their home loan rates in the next few months. With the festive season in the offing, developers are likely to dole out attractive schemes to attract fence sitters and first-time homebuyers,” said Ramesh Nair, CEO, India and Managing Director, Market Development, Asia, Colliers. 

“The hike might impact consumption sentiments negatively ahead of the festive season. However, from a home buyers’ perspective, home loan rates will still remain below 9% per annum and they must utilize this opportunity and make their purchases by cashing in on offers and festive discounts in the market,” said Amit Goyal, CEO, India Sotheby’s International Realty.

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What was expected from RBI

Experts were expecting that RBI would increase the repo rate further by up to 50 basis points today. “We now expect the RBI to hike the repo rate by 50bps on 30th September,” Yes Bank economists had said in a report.

An SBI Research report also predicted that the central bank might hike the repo rate by 35-50 points.

More pain coming?

Yes Bank economists believe RBI may again increase the repo rate by 35 basis points in December 2022 and further by 25 basis points in February 2023. “Even as we have consistently pointed that the RBI’s monetary reaction function is based more on domestic dynamics than blindly following the Fed, this time around, there could be a closer momentum of repo rate increases by the RBI to the global monetary policy cycle. Consequently, RBI will raise the repo rate by 50bps on 30th September. Further, we now see the RBI increasing the repo rate by 35 bps in December 2022 and further by 25bps in February 2023 before pausing,” they said.

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If the Yes Bank economists’ prediction comes true then the key policy rate would go up by another 110 basis points, starting from today till February 2023. This means that banks will also increase their floating home loan interest rates.

Silver lining

However, there may be a silver lining for borrowers at the end of this rising interest rate scare in 2023. According to SBI Research, inflation may fall in a jiffy in the second half of FY 2023. If this happens, falling inflation might motivate the RBI to reduce repo rates, which will ultimately reflect in the home loan interest rates of borrowers as well.

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