After 3.5 years, RBI hikes repo rate: How does it impact your EMIs? Explained
Why does a hike in repo rate hit your pocket? Does the repo rate hike mean an automatic increase in your loan EMIs? Is it better for you to opt for an EMI hike or an extension of your loan tenor? And how does this step from RBI help people looking to invest in fixed deposits? We decode:
The Reserve Bank of India has raised the repo rate in an effort to control inflation. This has led to increased costs for Indian households, who now face higher Equated Monthly Instalments (EMIs) for their loans. The US-Iran war has further contributed to the rising prices of daily essentials, reflected in the retail inflation numbers. The Monetary Policy Committee of the RBI decided on a 25 basis points hike in the repo rate during a recent review.
A higher repo rate impacts borrowers by increasing the interest rates on their loans. If a borrower's loan is linked to a floating rate, their EMIs will increase. However, borrowers can choose between increasing their EMIs or extending the loan tenor. Extending the tenor may be a more expensive option in the long run, as the borrower will end up paying more in interest over the life of the loan.
On the other hand, fixed deposit (FD) investors stand to benefit from the repo rate hike. As the cost of borrowing increases for banks, they are likely to offer higher interest rates on FDs to attract deposits. Although this benefit may not be immediate, it builds up over time. Savers should monitor their deposit maturity dates and consider renewing or opening new FDs at the prevailing higher rates.
Written by urgent.news from Times of India's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
