Your EMIs set to rise as RBI raises interest rates by another 25 basis points, explained

Shaktikanta Das, governor, The Reserve Bank of India (RBI) on Wednesday February 8, 2023, announced Monetary Policy Committee's (MPC) decision of raising interest rates by another 25 basis points. 

He said the new repo rate stands at 6.5%. The decision was taken after four out of six MPC members voted for the rate hike. 

How does this impact your EMIs?

As the Reserve Bank of India (RBI) raises its repo rate, it is likely to have an impact on the EMIs you pay for your loan. This is because when the RBI raises the repo rate, the interest rates offered by banks for loans also increase, which in turn makes the EMIs for loan repayment more expensive.

When RBI raises the repo rate, it is a signal to the banks that they need to increase their lending rates. This is done to control inflation and ensure that the cost of borrowing is kept in check. With an increase in the repo rate, banks will be forced to increase their lending rates. This in turn will lead to an increase in the interest rates that you will have to pay on your loan.

The increase in the interest rates will directly affect your loan EMIs. As the interest rate goes up, the amount of money that you have to pay back each month also increases. This is because the interest rate is a part of the EMI and when it increases, so does the EMI. If the interest rate goes up, you will be required to pay more each month in order to pay off your loan.

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It is important to note that the impact of the increase in the repo rate on your loan EMIs may be felt immediately or it may take some time. The extent to which your EMIs will be affected will depend on the type of loan you have taken and the interest rate at which it was taken. For instance, if the interest rate on your loan was set when the repo rate was lower, you might experience a more drastic increase in your EMIs.

In conclusion, it is important to remember that when the RBI raises the repo rate, it will lead to an increase in your loan EMIs. This is because the interest rate that you have to pay on your loan will also increase, which in turn will lead to an increase in the amount of money that you have to pay back each month. Therefore, it is important to keep an eye on the repo rate and to be aware of the impact it can have on your loan EMIs.