- Date : 05/08/2022
- Read: 3 mins
RBI hikes repo rate by 50 bps in August MPC meeting!
Everyone was expecting a rate hike today, and as expected, RBI has hiked the repo rate by 50 bps. The total rate hikes this year have been 140 bps. In June, RBI hiked the repo rate by 40 bps in an emergency MPC meeting. Then in June, the RBI hiked the repo rate by 50 bps. Now, with the hike of 50 bps, the total repo rate hikes this year have been 140 bps. So, what are the reasons that RBI is hawkish? Let's find out!
The inflation has been above the RBI's tolerance level of 6% for two consecutive quarters, and it has been above the 4% inflation target rate for 33 consecutive months. The CPI inflation in June this year was 7.01%, which is above RBI's threshold. The RBI may face a major embarrassment if the inflation continues above 6% for the 3rd consecutive quarter, as then the RBI will need to explain its stance to the government and the reasons for its failure. RBI governor Shatikanta Das in his speech, has said that the high inflation can destabilise the economy. Also, the WPI inflation in June was 15.18%, and the CPI inflation can catch up to the wholesale inflation.
How RBI rate hike impacts your EMIs?
If you have recently taken a home loan or any other loan, you would think that your EMIs and tenure will remain the same. But this might not be the case. If you are loan is linked to the repo rate, and you should know that most home loans are, then your EMI or tenure will increase with this repo rate hike. In India, banks offer home loans linked to the repo rate and as the RBI hikes the repo rate, your loan EMI or tenure increases.
So if you have taken a loan, you should either increase your EMI or your tenure. Most banks will simply hike your tenure and keep the EMI the same. But this does not mean that your expenses have not increased, as your tenure has increased. This tenure increase will affect you later, and if possible, you should make a prepayment on your loan.
So, on top of the inflation, your expenses might increase further with this repo rate hike. As per the RBI and various economists, the repo rate hike is needed to control the high inflation. Even the central bank in the USA, the Federal Reserve, has hiked the policy rates by 2.25% across four rate hikes starting March this year. In the latest hike last week, the Federal Reserve hiked the policy rates by 75 bps.
The increase of repo rate by 140 bps this year will impact your finances as your loan EMI or tenure will increase. A hike of 140 bps means that your interest rates have increased by 1.4%. This means that if you have taken a loan at 8% at the beginning of the year, now your interest rate is 9.4%. The increase in repo rate impacts your finances, and you should make changes to your finances immediately.