The Reserve Bank of India (RBI) raised its repo rate by 35 basis points to 6.25 percent on Wednesday. This announcement came on the last day of a three-day bi-monthly meeting of the RBI’s Monetary Policy Committee (MPC). Which deliberated extensively before making the decision to raise interest rates.
The latest rate hike, the fifth in a row since May, increased the likelihood of EMIs for home, auto, and other loans rising further. The previous four increases totaled 190 basis points, with the last three being 50 basis points each.
According to Anu Aggarwal, Head Corporate Banking at Kotak Mahindra Bank.
The 35 basis point increase is in line with market expectations. The good news is that the RBI has broken the 50-bps rate-hike trend as growth headwinds intensify and inflation pain eases. Until the RBI is completely confident in the downward trend of inflation. It may opt for a smaller rate increase. As it must also focus on growth amid bets of easing inflation pressure.
The RBI policy announcement today was in line with expectations, with the policy rate being raised by 35 basis points while the policy stance remaining unchanged. However, the policy tone was markedly more hawkish than anticipated. When a central bank combines a bullish view on growth with continued concerns about inflation. Particularly the persistence of core inflation, it indicates that it is prepared to fight inflation and has the space and willingness to raise interest rates further.
The central bank emphasised that it will not relent in its fight against inflation. Aiming to keep it below 6% in the short term and closer to 4% in the medium term.
According to Atul Monga, Founder and CEO of Basic Home Loan.
As interest rates rise, the impact of monthly instalments will be felt by both new and existing customers. To deal with the impact of a higher interest rate, customers should maintain good credit, research the best rate offers, and consider refinancing existing loans to lower monthly payments. Customers can also choose long tenures or switch to a floating rate of interest.