RBI rate hike: Your home loan EMI just went up
Following the RBI's unanimous decision to increase the repo rate, home loan equated monthly installments (EMIs) are set to rise for many borrowers. The Monetary Policy Committee (MPC) also adopted a stance of "calibrated tightening," indicating that rate cuts are off the table for now. Governor Sanjay Malhotra stated that future choices are limited to further increases or a pause. The exact impact on existing borrowers will depend on the benchmark their loan is linked to, with external benchmark-linked loans seeing faster transmission.
What this means
For borrowers, particularly those with floating-rate home loans tied to an external benchmark like the repo rate, an immediate increase in their monthly payments is imminent. Banks will begin adjusting their lending rates, making new loans more expensive and potentially tempering demand. While deposit rates might also tick up, the speed of transmission to lending rates is often quicker. This situation could pressure household budgets and lead to a more cautious approach to new borrowing, impacting the growth trajectory of retail credit portfolios.
Most affected: Retail borrowers, housing finance companies
Key takeaway: Inform customers about impending EMI changes for floating-rate loans and prepare for shifts in retail credit demand.
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