Home loans to increase as RBI hikes repo rate by 50 basis points

Reserve Bank of India

The Reserve Bank of India has increased the repo rate by 50 basis points to 5.5 per cent, as inflation seems to be moderating in the domestic market. Central bank of India has remained focused on the withdrawal of accommodative stance to maintain inflation within the target.

RBI’s decision to raise the repo rate is in response to the headwinds being faced by the Indian economy including high inflation, uneasy financial markets, foreign portfolio outflows, majorly caused by distress in the global economic situation,” said Pradeep

Repo-rate is the rate at which commercial banks borrows money from RBI. Therefore, if the central bank increases the repo rate, then the cost of borrowing for retail and other bank will also go up. Banks are passing on the rising cost to the borrowers by hiking the interest rates of loans.

“So far the commercial banks have transmitted the policy rate hike to the borrowers, resulting in an increase in lending rates across all the sectors including real estate. Today’s rate hike will further harden the rates,” said Shishir Baijal, chairman and managing director, Knight Frank India.

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RBI has raised the repo rate by 140 basis points in 2022. After the hike, repo rate has increased 1.4 per cent, which will impact both the new and existing borrowers. “As most of the lenders have linked their home loan lending rate with the repo, the impact on borrowers would be immediate, “explained Pranjal Kamra – CEO, Finology Ventures.

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