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The Reserve Bank of India (RBI) has increased the repo rate by 50 basis points to 4.9 per cent in its June Monetary Policy Committee (MPC) meeting. Earlier in May, the central bank had raised the repo rate by 40 basis points in a surprise move to tame inflation. The latest hike of repo rates will impact existing and new retail loan borrowers with floating interest rates.
RBI Hikes Repo Rate: What it Means for Borrowers
Repo rate is the rate at which commercial banks borrow money from the Reserve Bank of India. If the central bank increases repo rate goes up, the cost of borrowing for retail and other loans also rises.
The equated monthly instalment (EMI) for fixed rate loans, such as personal loans and auto loans, remain same throughout the tenure. However, some retail loans, especially home loans are linked to the bank’s external benchmark. Most of the banks and non-banking financial companies (NBFCs) have linked their lending rates to the repo rate fixed by the central bank. So, when the repo rate goes up, the repo rate linked lending rate (RLLR) of banks also increases.
Two back-to-back hike in repo rate will have an immediate impact on borrowers.
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