2 hrs ago
RBI Rate Hike Could Lift EMIs, While Housing Demand Holds
The Reserve Bank of India raised the rate it charges banks to borrow money.
Banks may pass this increase on to people with loans whose interest rates can change.
If they do, borrowers could pay a higher monthly amount or take longer to repay the loan.
The size of the change depends on the loan amount, remaining time, and the lender’s rules.
For example, one estimate says a Rs 50 lakh loan over 20 years could cost about Rs 767 more each month.
Other examples use different loan terms and produce different increases.
Banks might also offer better rates on new fixed deposits, but they do not have to change them right away.
Real estate leaders said festive buying and continuing housing demand could help limit the effect on the market.
The RBI raised its repo rate by 25 basis points, from 5.25% to 5.50%, its first increase since February 2023.
Floating-rate borrowers may face a higher EMI or longer repayment tenure if lenders pass on the increase; timing depends on each lender’s reset cycle.
Illustrations show different EMI increases depending on loan size and term: about Rs 307 monthly on Rs 20 lakh over 20 years, and Rs 817 on Rs 50 lakh over 25 years.
For a Rs 50 lakh loan over 10 years at 8%, one estimate puts the monthly increase at about Rs 662 if the rate rises to 8.25%.
Banks may raise rates on new or renewing fixed deposits, while real estate leaders expect festive demand and underlying buyer interest to cushion housing demand.
- Who
- The Reserve Bank of India, banks, floating-rate borrowers, fixed-deposit savers, and the housing industry.
- What
- The RBI raised the repo rate by 25 basis points to 5.50%, potentially increasing loan costs and eventually affecting deposit rates.
- Where
- India.
- When
- The increase was announced on October 7; an article describes it as occurring on Wednesday.
- Why
- One article cites rising global bond yields and a strengthening dollar; a banker cited inflationary stress amid global uncertainty.
Borrowers and affordability
Savers and housing industry
Effect on borrowers
Borrowers and affordability
Floating-rate borrowers could face higher monthly payments or a longer loan term if lenders pass on the rate increase.
Savers and housing industry
Real estate industry leaders expect strong buyer sentiment, festive demand, and underlying housing demand to cushion the immediate effect on the housing market.
Effect on depositors
Borrowers and affordability
The rate hike could add to borrowing costs for homebuyers and other borrowers.
Savers and housing industry
Savers may eventually receive better rates on new or renewed fixed deposits, although banks may adjust rates gradually and existing deposits generally remain at their booked rate.
Key facts
- Repo rate
- 5.50%, increased from 5.25%
- Increase
- 25 basis points
- Prior increase
- The previous repo rate hike was in February 2023.
- Rs 20 lakh example
- For a 20-year loan at 7.50%, the estimated EMI rises from about Rs 16,112 to Rs 16,419.
- Rs 30 lakh example
- For a 20-year loan at 7.50%, the estimated EMI rises from about Rs 24,168 to Rs 24,628.
- Rs 50 lakh example
- For a 20-year loan at 7.50%, the estimated EMI rises from about Rs 40,280 to Rs 41,047.
- Rate transmission
- The impact depends on whether lenders pass on the full increase, the loan benchmark and spread, and the reset cycle.
- Deposit rates
- Banks may raise rates on new or renewing fixed deposits; existing deposits generally keep their booked rate.
Quotes
Pralay Mondal
Managing director and CEO of CSB Bank.
“For borrowers, the effect will be gradual. The rise is one-fifth of the 125 basis points of cuts delivered earlier, so much of that relief on EMIs stays in place. On a Rs 40 lakh home loan, the EMI could go up by about Rs 654 a month once the change is passed on, adding roughly Rs 1.96 lakh in interest over the tenure.”
financialexpress.com
“Existing fixed deposits continue to earn the rate at which they were booked. With the RBI also moving to calibrated tightening, savers can keep an eye on when their deposits mature, so that each one renews at the prevailing rate.”
financialexpress.com
Sources
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