In announcing the Monetary Policy Committee’s recommendations, RBI Governor Shaktikanta Das stated that the RBI raised the repo rate by 50bps to 5.90%. This affected the housing and car loans. Since May, the central bank has increased the repo rate four times, bringing it most recently to 5.90%. The most recent change in the repo rate was made to keep inflation within the desired range.
What RBI governor said?
Five out of the six members of the MPC voted in favor of raising the repo rate. When announcing the increase in the repo rate, Das highlighted. “It was not just the need to manage inflation levels that had inspired the move”. Adding on, he said we need to manage the unfavorable behavior of other central banks across the world. In particular those in developed nations.
Das said, “The COVID-19 epidemic and the Ukraine war have both shocked the globe significantly. As a result of monetary tightening and forceful messaging from central banks, we are currently seeing a third significant shock. ” He said that despite high prices and concerns about a global recession, the industry has remained robust. Further he announced the RBI’s pullback from its supportive approach.
This change was made as experts projected a 50 bps increase in the repo rate. This was in accordance with world events. Nirmal Jain, the founder and chairman of IIFL, stated earlier this week. The RBI’s repo rate, which has already increased by 140 basis points since May, may increase by 50 basis points once more.
The majority of respondents indicated, they anticipated the central bank to pursue a 50 basis point increase. A 50 bps boost was predicted by respondents across platforms. This includes including Twitter (72.5%), LinkedIn (57%), YouTube (58%), and Instagram (29%), while others anticipated an increase of 25–35 bps. A few respondents said they did not plan to raise prices at all.
The EMI for personal, auto, and house loans is also anticipated to increase with an increase in the repo rate. Loan rates will rise when the cost of borrowing for banks increases, driving up the cost of home, vehicle, and personal loans.
What CEO of Bankbazaar.com said ?
Adhil Shetty, CEO of Bankbazaar.com, commented on what individuals may do following the most recent repo rate increase. He said, “Prepaying in whatever way possible at this time is advised in order to limit your interest outflow. You might reduce your non-essential spending to make prepayments. Borrowers who prepay may experience short-term hardship, but once the rate cycle turns, they will benefit. “
Shetty said, “The per lakh interest you would pay on a 20-year, 7% house loan would be $86,071. Your EMI is 775 per lakh. You had 237 EMIs remaining if your rate increased to 8.9% after three months, but assuming the same EMI, it could now potentially go to 410 months. The duration extension will be less if the EMI is higher. However, your loan is 173 months, or about 14.5 years longer at 410 months. Your term would be reduced to 236 months at this point if you paid an immediate pre-payment equal to 17 times your EMI. Every 12 months, four 4.5-times EMI prepayments have about the same impact on lowering your tenor. “
Additionally, the Indian stock markets began on a cautious note in anticipation of Shaktikanta Das’ pronouncement of the Monetary Policy Committee’s (MPC) decision. The Nifty50 opened at 16,818.10, while the Sensex began 0.28 percent lower at 56,251.19 On the other hand, early trading saw the Indian Rupee increase 14 paise to 81.59 against the US Dollar.