Due to the rise in inflation once again, the concern of the Reserve Bank of India (RBI) has also started increasing. In such a situation, the common man may get shocked again. We are talking about expensive loans.
Actually, the retail inflation (CPI) rate in the country again increased to 6.52% last month. Due to this, it is expected that the possibility of another increase in the Repo Rate has also increased. RBI has also indicated that there is a lot of uncertainty regarding inflation. If the central bank takes another strict step, then the EMI of the loan will increase again.
Rising inflation a cause for concern
To put it plainly, the people of the country are not getting relief from the expensive loans. The Reserve Bank of India (RBI) had increased the repo rate by 0.25 per cent after this year’s MPC meeting convened in early February. However, inflation had come under the purview of the Reserve Bank. But now again the inflation has reached above the fixed target, then there is every possibility that once again the decision to increase the interest rates can be taken by the RBI.
Scope for hike in interest rates
Due to global uncertainties, the rise in inflation rate again has increased the concern of RBI. According to the details of the MPC meeting released on Wednesday, the indications given by Governor Shaktikanta Das during this period can be said that he can once again give a blow to the public. Presenting the details, he has also said that due to rising prices and inflation, there is a lot of uncertainty regarding inflation. He said that to control it, there is scope for increasing interest rates in the coming days.
Experts have also expressed apprehension that in the next MPC meeting, the Reserve Bank may once again increase the repo rate by 0.25 per cent or 25 basis points. If RBI takes this decision, then the repo rate will increase to 6.75 percent. This decision will prove to increase the burden of debt on the public. Due to increase in repo rate, all types of loans including home loan, car loan and personal loan will become costlier and more EMI will have to be paid.
Repo rate increased like this since May last year
Significantly, since May last year, the Reserve Bank has increased the repo rate by 2.50 percent. To control the high inflation rate, it was increased for five consecutive times in 2022 itself. Its effect was also visible and the inflation rate came under control, yet in February 2023, the central bank had decided to increase the policy rates. If you look at the increase in the repo rate, it was increased by 0.40% in May 2022, 0.50% in June 2022, 0.50% in August 2022, 0.50% in September 2022 and 0.35% in December 2022. After this, again in February 2023, it was increased by 0.25%.
EMI increases due to increase in repo rate
The repo rate decided by RBI directly affects the bank loan. When it decreases, the loan becomes cheaper and after it increases, banks also make their loans costlier. Its effect falls on all types of loans like Home Loan, Auto Loan, Personal Loan.
It is important to understand here that Repo Rate is the rate at which RBI lends to banks, while Reverse Repo Rate is the rate at which RBI gives interest to banks for keeping money. Due to the decrease in the repo rate, the EMI of the loan decreases, while the increase in the repo rate makes all types of loans costlier and in this sequence, there is an increase in the EMI as well.
