Bombay: In a surprising move that will increase borrowing costs for businesses and individuals, the RBI on Wednesday after an unscheduled MPC meeting raised the benchmark lending rate by 40 basis points (bps) to 4.40% for contain inflation, which has remained stubbornly above the 6% target for the past three months.Also read – ATTENTION mortgage customers! Here’s your strategy to beat rising interest rates
Led by RBI Governor Shaktikanta Das, the Monetary Policy Committee (MPC) also increased the amount of deposits banks are required to maintain a cash reserve by 50 basis points to 4.5% to suck 87,000 crores of rupees of banking system liquidity. The RBI said the CRR hike will be effective from May 21. Read also – Explained | 5 Ways Repo Rate, CRR Hike by RBI Will Affect You
These include the first rate hike since August 2018 and the first instance of the MPC making an unanticipated increase in the repo rate (the rate at which banks borrow from the RBI). Also Read – RBI Raises Interest Rate by 40bps to 4.40%, All EMI Loans Become Costly
While inflation has remained above the 6% target since January, the RBI governor said inflation in April will also be high. Retail inflation for March was 6.9%.
Additionally, the RBI Governor added that the MPC decision reversed the May 2020 interest rate cut by an equal amount.
What impact will this have on EMIs of home, auto and personal loans?
The surprising decision of the RBI to increase the repo rate will force all banks to raise interest rates on loans. Therefore, home loans and car loans will become more expensive in the coming days. If any of you are thinking of taking out a loan, you better do it quickly because the interest rate on loans may start to rise soon.
Moreover, the increase in the repo rate means that it is bad news for existing borrowers as well, as banks and other financial institutions will soon start raising interest rates on loans, which means at in turn that the EMIs of the loans will also increase. All loans will be affected by the latest RBI policy decision – be it a home loan, car loan or personal loan.