All eyes now turn to Friday’s RBI bi-monthly Monetary Policy. The repo rate will be increased by RBI to curb CPI inflation, which has remained above its comfort zone for six consecutive month.
A rate hike case is on the table again. It will have an impact on borrowers’ term loans, including home loans. The repo rate is generally increased when RBI raises it.
This increases the cost for banks and lenders. Banks will pay more to borrow money from RBI if the rate is increased.
Banks pass the increase in interest rates to borrowers on loans by raising their own interest rates, which increases the monthly EMIs.
Home loan interest rates will likely rise for both new and existing borrowers.
RBI raised the repo rate by 90 basis point in the two previous policies. In May, the repo rate was increased by 40 basis points and then it was raised to 50 in June.
The current policy repo rate is 4.90%. The standing deposit facility rate (SDF), currently at 4.65%, is being offset by the marginal standing facility rate (MSF), and the Bank rate at 5.15%.
India’s CPI inflation stands at 7.01% for June 2022, slightly down from May’s 7.01%. Inflation reached 7.79% in April this year. Inflation has been above the RBI’s limit of 6% for six consecutive months.
Many banks raised their home loan rate from May to July of this year. Most lenders have tied their lending rates to the repo rate.
The latest data from RBI shows that the weighted median lending rate (WALR), on fresh rupee loans to SCBs, increased by 8 basis points (bps), from 7.86% (May 2022) to 7.94% (June 2022).
The 1-Year median Marginal Cost of Fund Based Lending Rate (MCLR), of SCBs, increased from 7.40% to 7.55% between June 2022 and July 2022.
The WALR for outstanding rupee loans by SCBs rose 14 bps to 8.93% between June 2022 and June 2022.