Reserve Bank of India (RBI) has increased the repo rate by 50 basis points to 4.9 per cent in its June Monetary Policy Committee (MPC) meeting. Earlier in May, the central bank had increased the repo rate by 40 basis points in a surprising move to control inflation. The latest hike in repo rates will have an impact on the floating interest rates on existing and new retail borrowers.
RBI hikes repo rate: What does it mean for borrowers
Repo rate is 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 for retail and other loans also increases.
The Equated Monthly Installment (EMI) for fixed rate loans like personal loans and auto loans remains the same throughout the tenure. However, some retail loans, especially home loans, are linked to an external benchmark of the bank. Most banks and non-banking financial companies (NBFCs) have linked their lending rates to the repo rate set by the central bank. Therefore, when the repo rate increases, the repo rate linked lending rate (RLLR) of banks also increases.
One or two hikes in the repo rate will have an immediate impact on the borrowers.
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