Interest rates on home loans are expected to rise as the Reserve Bank India On Wednesday, it was announced to increase the repo rate by 25 basis points to 6.5 percent.
Repo rate is the rate at which RBI lends money to commercial banks.
Now banks will have to pay more interest to RBI on the loans taken from the central bank. It is expected that banks will pass on the increase in various loans given including home loans.
“As per the RBI governor, inflation is likely to remain at 5.6% for 4QFY23, and is expected to remain above 4% in FY24. The increase in rates is likely to increase the EMI burden for floating rate linked loans. However, the bank’s NIM is likely to remain stable due to the rising proportion of loans linked to EBLR, said Ajit Kabi, banking analyst at LKP Securities.
Those who have taken a loan or are planning to take one can expect an increase in their EMIs to accommodate the rate hike.
Monetary Policy Committee (MPC) decision This was announced by RBI Governor Shaktikanta Das.
Kotak Mahindra Bank Chief Economist Upasana Bhardwaj said, “The MPC has moved in line with our expectations given the need to moderate inflation expectations. Reinforcing the need for further action as inflation moves above the medium-term target of 4%.” As inflation remains, the MPC remains focused on inflation. Going forward, as inflation begins to ease, we expect real rates to return closer to pre-pandemic levels soon and hence the need for incremental rate hikes will be limited. We expect a prolonged pause on rates with a possible change in stance in the coming April policy.”
Das said a rate hike of 25 bps is considered appropriate at this juncture, monetary policy remains tight, inflation watchful.
The RBI had raised the key lending rate by 35 basis points in December after three straight 50 bps hikes and said its fight against inflation was not over yet.
Several banks hiked their repo-linked lending home loan rates following the rate hike announced by the RBI in December.
Meanwhile, RBI today projected retail inflation at 6.5% for 2022-23; 5.3% for the next financial year.
It projected a GDP growth rate of 6.4% for 2023-24.
Das said that amid volatile global growth, the Indian economy remains resilient.
The decision of the six-member rate setting panel was announced by the governor on Wednesday.
With retail inflation showing signs of softening and falling below the RBI’s 6% upper tolerance level and a projected slowdown in GDP growth in the next fiscal beginning April, experts were of the view that the central bank could only go for a hike of 25 basis points. can choose. prime interest rate.
The MPC, headed by RBI Governor Das, began its three-day meeting on Monday amid expectations of a modest 25 basis point rate hike or a pause on rate hikes that began in May last year to check inflation.
Since May last year, the RBI has increased the short-term lending rate by 225 basis points to control inflation, driven mostly by external factors, especially the global supply chain disruption following the outbreak of the Russia-Ukraine war.
The RBI has been tasked with ensuring that retail inflation remains at 4 per cent with a margin of 2 per cent. However, it failed to keep the inflation rate below six per cent for three consecutive quarters from January 2022.
However, retail inflation based on the Consumer Price Index (CPI) showed signs of moderation in November and December as it fell below the RBI’s upper tolerance level of 6 per cent.
The MPC consists of three RBI officers and three external members appointed by the central government.
The external members are Shashank Bhide (Honorary Senior Advisor, National Council of Applied Economic Research, Delhi); Ashima Goel (Emeritus Professor, Indira Gandhi Institute of Development Research, Mumbai); and Jayant R. Verma (Professor, Indian Institute of Management, Ahmedabad).
Besides the governor, the panel has RBI officials Rajeev Ranjan (executive director) and Michael Debabrata Patra (deputy governor).
(with inputs from agencies)
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