The Reserve Bank of India on Wednesday increased its repo rate by 25 basis point- thus marking its first back-to-back hike on policy rates since October 2013. However, with the increase in the repo rates, the bank might increase the cost of funds that will further increase their marginal cost of lending rates.
According to the CEO of Paisebazar.com, Naveen Kukreja, “Home loans will become costlier for fresh borrowers as and when the banks raise their respective MCLRs”.
The new repo rate turns out to be 6.5% as the inflation remains stubbornly above the 4% and RBI has projected the second half inflation at 4.8% which can grow further to 5% till the fiscal year 2020.
Suppose, if you have applied for the loan of 1 Lakh for 20 years at 8.5% interest rate, the EMI would be fixed at Rs 868 but if the rate increases to 8.75%, the EMI will increase to Rs 884 and at the condition of 9% hike, EMI becomes Rs 900.
With the increase in policy rates, investors should look for the small savings schemes as they are risk-free and investment in PPF, Sukanya Samriddhi, post office savings will give the guaranteed returns.
The RBI monetary committee’s decision for the price hike is more dominant by the effect of Minimum Support Price (MSP) on agricultural products on inflation as per the experts.
Dheeraj Singh, head of Taurus Mutual funds said, “The decision to hike rates has, quite clearly, been driven by the persistent increase in headline and core inflation that we have witnesses the last couple of months”.
He further added, “The likely impact of recent hikes in the minimum support price (MSP) of agricultural products on inflation has, probably, also influenced the committee’s decision to pro-actively hike interest rates”.
However, those who kept have the fixed deposits with the banks would get the benefits of increased policy rates as bank would increase the FD rates by 5 to 10 bps.