RBI Increases Repo Rate For The First Time In 4 Years; This Is How You Will Be Affected!
An increase in repo rate means that instalments of home loan and other loans for the consumer will increase.
For the first time in 4 years, Reserve Bank of India has increased the repo rate. This is PM Modi Govt.’s first increase in the repo rate.
Repo rate is the interest at which RBI (or any Central bank in other countries) lend money to other banks, which are meant for consumer loans. It is also called short-term lending rate.
An increase in repo rate means that instalments of home loan and other loans for the consumer will increase.
How will it affect you? Keep reading to know more!
Repo Rate Increased For The 1st Time in 4 Years!
The last increase in repo rate happened on January 28, 2014, when RBI increased the interest rate by 0.25% to make it 8%.
This time, the repo rate has been increased by 25 basis points (bps) or 0.25%, to make it 6.25%, which is still less than what was the repo rate in 2014, when Modi regime came into power.
After PM Modi came into power, the repo rate was decreased on 6 occasions – the last time it was decreased was on August 2, 2017, when the rate was decreased by 0.25% to make it 6%.
Repo rates are monitored and governed by the 6 member Monetary Policy Committee of the RBI, which is right now headed by RBI Governor Urjit Patel.
As per Finance minister Piyush Goyal, this increase in repo rate signifies ‘balanced assessment of growth and inflation.’
In a tweet, he said,
“Coming on the back of robust GDP growth, lower consumer inflation, strong GST collections and positive investor sentiment, I welcome RBI’s monetary policy which confirms that economic activity is on the upswing and expects a boost to investments from swift resolution of NPAs.”
How Will This Increase Affect You?
Say, you have taken a home loan of Rs 20 lakhs, whose interest rate is 8.4%. At this rate, you are paying a monthly instalment of Rs 1.68 lakh.
After the increase in repo rate by 0.25%, the banks can pass on the burden to you, and increase the interest rate on the home loan to 8.65%.
Hence, if that happens, then the instalment will increase by Rs 5000 to become Rs 1.73 lakh.
Simple logic is that the greater the loan amount, the harder shall be the impact.
A home loan or personal loan of Rs 2 crore will face an increase of Rs 50,000 in monthly instalments.
Next meeting of Monetary Policy Committee is scheduled for July 31st and August 1st.
We will keep you updated, as we receive more news on this front.
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