Planning A Home Loan? Why A Possible 50 Bps RBI Repo Rate Hike Could Make Borrowing Costlier

Mumbai: Homebuyers should brace for higher mortgage repayments, with experts anticipating the Reserve Bank of India to hike the key repo rate by 50 basis points before December 2026, according to The Hindu. The Monetary Policy Committee may raise the benchmark rate by 25 basis points in both October and December, pushing the repo rate from 5.25% to 6% by the end of the year.

This gradual increase could lead banks and housing finance companies to adjust floating interest rates, making home loans more expensive for borrowers.

A basis point represents one-hundredth of a percentage point. If these rate hikes occur, borrowers might face higher monthly installments or stretched loan tenures, depending on their lender's policies and loan conditions. Homebuyers will need to reconsider their affordability and consider maintaining a buffer for repayment. They should also compare fixed and floating-rate options.

Current inflation, at 4.82% in August, is expected to rise, possibly reaching 5% by September. Crude oil prices adding to inflationary pressures, as higher energy costs impact consumers. Surplus liquidity in the banking system, estimated at Rs 15 trillion, could keep financial conditions loose and exacerbate inflation risks. The RBI has employed open market operations and reverse repo auctions to manage liquidity but may further drain Rs 4 lakh crore from the system.

For homebuyers, budgeting carefully is essential, as borrowing costs may increase before the end of the year.