Home loans, car loans will be expensive; A half percent increase in interest rates
New Delhi: The Reserve Bank of India has increased the repo rate by 0.25 percent in the last meeting of the Monetary Policy Committee for the financial year 2022-23. 4 out of 6 members of the committee voted in favor of the decision to increase the repo rate. With this new increase, the repo rate now stands at 6.50 percent. Since May 2022, the repo rate has been increased six times. This increase is 2.25 percent. After this, home loans, car loans are going to be expensive. The direct impact of this will fall on the common man’s pocket.
What is the relationship between repo rate and bank interest?
Banks often take short-term loans from the Reserve Bank of India. When the RBI increases the interest rate on loans given to other banks, the repo rate is said to increase. When the RBI increases the interest rates, the banks that borrow capital also increase the interest rates on loans given to their customers to avoid losses.
It is common practice for banks to pass on the burden of interest rate hike to the customers instead of bearing it themselves. Should we bear the brunt of interest rate hikes on banks’ profit margins? How much to bear? These lenders are determined by banks and financial institutions. As financial institutions with high amount of outstanding loans do not have strong balance sheets, the burden of interest rate hike is more likely to be pushed on you and your EMIs will increase.
Thus, an increase in interest rates by the RBI can directly increase your EMI or monthly loan installments and disrupt the financial math of the general public.
What will be the effect on your bank fixed deposits?
Banks can also pay more interest on fixed deposits with banks after the increase in repo rate. However, this decision depends on the bank itself. From the observation so far, the experts said that after the repo rate, there is an immediate increase in the interest rate on the loans from the banks. However, the decision to increase the deposits and benefit the customers is often taken very late.