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New Delhi:

The Reserve Bank of India (RBI) on Wednesday raised the repo rate point by 50 percent after its June policy meeting.

In order to reduce the ever-increasing inflation rate, the central bank has increased the prime interest rate to 4.90 percent.

Inflation has been above the RBI's target band of 2-6 per cent since the beginning of this year.

An increase in the repo rate increases the cost of funds for the banks.

Repo rate is the interest rate at which RBI lends short-term money to banks.

The immediate effect of the hike in repo rate has been on retail loans like home loans.

Adil Shetty, CEO, Bankbazaar.com, said, “Home loan interest rates, which were down from around 6.50 per cent in April, will now rise to 7.60 per cent in June. The hike in back-to-back repo rates will make floating-rate loans longer. For example, if a person borrowed at the rate of 7 per cent for 20 years and if their rate increased to 7.50 per cent, they would have to pay 24 more EMIs."

RBI increased repo rate for the second time in about a month, taking loan from banks and buying a house will be more expensive

He said, “If he had opted for EMI adjustment, his per lakh EMI would have increased by ₹ 30 in the above example. That is, his monthly expenses would increase by about 4 per cent. The math is different for each borrower. The key is this repay the loan within the desired time frame. Borrowers can use prepayment methods like EMI step-up or lump sum payment to control their interest burden."

Last month, the Reserve Bank had hiked the repo rate by 40 bps in an off-cycle meeting, making it the first rate hike since August 2018.

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Shetty said "With the repo hike, interest rates on home loans will increase. The overall hike of 90 bps within 36 days means that all home loans at floating rates will be more expensive. Existing and new borrowers will be able to take the form of banks and housing." Will have to pay higher EMIs. Finance companies will pass on the interest rate hike to them. This may not be the last hike, as RBI is expected to hike rates by 2022 or till inflation is brought down to a tolerable level. Borrowers can either Can extend your home loan tenure to keep your EMI unchanged or partially prepay some amount to reduce the additional interest burden Your credit score plays a vital role in helping you reach lower interest rates especially if you refinance your loan."

Also, RBI has raised its inflation forecast for the current fiscal to 6.7 per cent due to the prevailing geopolitical tensions, Russia-Ukraine war.

RBI Governor Shaktikanta Das said that inflation may remain above 6 per cent in the first three quarters (2022-23) of the current financial year.


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