RBI monetary policy: what does a hike in the repo rate mean for your home loan EMIs

Interest rates on term loans such as houses, cars and individuals are linked to the external benchmark, including the repo rate. When the RBI policy rate increases, it also leads to an increase in the cost of funds for banks. As a result, banks raise interest rates, which eventually hits your pocket as monthly installments (EMI) become more expensive.

Last month, RBI raised the key repo rate under the Liquidity Adjustment Facility (LAF) by 40 basis points to 4.40% with immediate effect. The rate hike was made to maintain sufficient liquidity and to combat inflationary pressures.

After the rate hike, many banks, including SBI, HDFC Bank, ICICI Bank, Axis Bank, Bank of Baroda, Canara Bank, and Kotak Bank, among others, also increased their MCLR (Marginal Cost of Lending Rates). funds) and other lending benchmarks.

What do experts expect from the next RBI policy?

According to Dhananjay Sinha, Managing Director and Chief Strategist, JM Financial Institutional Securities, the combination of external vulnerabilities and higher fiscal deficits will complicate things for RBI as it juggles multiple objectives of controlling inflation, orderly money and yield scenario Gsec. Our assessment indicates that RBI’s currency management in the face of rising US rates and dollar strength has resulted in increasing exchange rate rigidity and is reflected in a decline in RBI’s foreign exchange reserve of 42 billion USD from the peak at 600 billion USD. So, in the context of continued quantitative and rate-tightening by the US Federal Reserve, this will result in both moderating liquidity in India and further rate hikes.

In addition, Sinha said, inflation management is tricky as the real repo rate is deeply negative at -3.4% (4.4% – headline CPI at 7.8%) and -2.6% assuming underlying inflation of 7%. Thus, to arrive at a neutral real rate of 1%, RBI will have to substantially increase the repo rate and tighten liquidity. Assuming core inflation falls to 6% over the next 12 months, short-term rates will need to be at 7% from the current level of around 4% (overnight money rate). day). This would ideally call for a repo rate hike of around another 200-250 bps.”

“Over the next 12 months, RBI can be expected to raise rates by at least 150 basis points and 40-50 basis points on June 8,” Sinha added.

Indranil Pan – Chief Economist of Yes Bank said: “We see the RBI extending its May 40bps hike with a 35bps increase in June, followed by 25bps each in August and September. . By then, we expect global growth to have slowed. enough to pull down commodity prices and thereby also reassure the domestic inflation cycle So we factor in the RBI to hit the pause button again after a 15bp hike in the repo rate in December and let’s analyze the implications of its 140 basis point rate hike cycle on growth before making any further decisions.”

On market sentiment towards RBI’s upcoming policy, Vinod Nair, Head of Research at Geojit Financial Services, said: “The market has priced in a rise of up to 50 basis points in the rate. repo and CRR, but any other tighter measures to limit liquidity due to persistent inflation will have ramifications on the market trend.Besides monetary measures, RBI guidance on growth and inflation will determine the market trend.

What does a rate hike mean for your home loan EMIs?

Ashish Khandelia, Founder of Certus Capital, said: “We expect the repo increase to be between 40-50bp at the next MPC meeting, with future increases leading to around 5.75% (where we were exactly 3 years ago) or rising by the end of FY23.”

On home lending, Khandelia said: “The latest 40bp increase in May has taken home lending to +/-7% from ~6.5% earlier. And by the end of This fiscal year, mortgage rates will likely hit ~8% This is unlikely to derail housing momentum, but it will certainly dampen it Coupled with higher prices, growth could slow down a bit over the next fiscal year 23, after a record for fiscal year 22.”

Here are the mortgage rates of some major banks:

National Bank of India:

Since June 1, SBI home loan rates have been increased. However, to qualify for the lowest interest rate at SBI, your CIBIL score is important.

On regular SBI home loans, for a credit score of 800 or higher, the interest rate will be lowest at 7.05% with a maximum gain of 7.45%. Between 750 and 799 credit scores, the interest rate is 7.15%, while on credit scores 700 to 749, the interest rate is 7.25%. For credit scores 650 to 699, the interest rate will be 7.35%, while for credit scores 550 to 649, the rate is 7.55%. For the NTC/non-target score, the interest rate is 7.25%.

HDFC Bank:

The lender offers special home loan rates. For loans up to 30 lakh, the interest rate is 6.75-7.2% for salaried women and 6.80-7.30% for others.

Meanwhile, for home loans of 30.01 lakh to 75 lakh, the interest rate is 7.00-7.50% for salaried women and 7.05-7.55% for others.

For the above mortgages 75.01 lakh, a salaried woman will have an interest rate ranging from 7.10 to 7.60% and the others will pay a rate of 7.15 to 7.65%.


From May 4, ICICI Bank revised its mortgage rates linked to a repo rate (RR) of 4.4%.

To salaried borrowers, ICICI Bank home loans of up to 35 lakh has an interest rate of 7.1% to 7.55%, while for loans up to 35,000,000 75 lakh – the rate is 7.1% on the lower front and 7.7% on the maximum.

For the above mortgages 75 lakh, the lowest rate is 7.1% but can go up to 7.8% maximum.

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