EMIs likely to go up as RBI hikes repo rate

New Delhi, May 04: Every month installments (EMIs) are likely to rise as Reserve Bank of India (RBI) announced a surprise repo rate hike by 40 basis points amid high inflation levels.

When the RBI hikes interest the repo rate, the rate at which banks borrow from the RBI loans for the customer will become expensive because of the hike in the interest rates by Banks.

The EMI of a loan changes with changes in market interest rates. If market rates rises, the repayment increases. When rates fall, the dues also fall.

If your loan amount is Rs 30,00,000 and the tenure is 20 years, then it would increase from the existing 6.8 per cent to 7.2 per cent.

The EMI for your 20 year loan of Rs 30,00,000 will increase from 22,900 to 23,620. This means the EMIs would go up by Rs 720

The RBI on Wednesday increased the benchmark lending rate by 40 basis points (bps) to 4.40 per cent in a bid to contain inflation, which has remained stubbornly above the target zone of 6 per cent for the last three months.

The decision follows an unscheduled meeting of the Monetary Policy Committee (MPC), with all six members unanimously voting for a rate hike while maintaining the accommodative stance.

While the inflation has remained above the targetted 6 per cent since January, RBI Governor Shaktikanta Das said the inflation print in April is also likely to be high.

The retail inflation print for March stood at 6.9 per cent.

The RBI has done the first rate hike since August 2018.

The governor said the decision of MPC reversed the May 2020 interest rate cut by an equal amount.

The central bank had last revised its policy repo rate or the short-term lending rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting the interest rate to a historic low of 4 per cent.