First time in Modi’s regime, RBI has increased the Repo rate by 25 basis points which is now 6.25. Since 2014, till the recent Budget 2018, RBI either reduced the repo rate or maintained status quo. Let us know more details about how the Repo rate, home loan, personal loan interest rates are interlinked.
What is Repo Rate?
Repo rate is the rate at which the RBI lends money to the banks. As we pay interest to the bank s when we take loan, the same way the banks pay interest to the RBI when the banks take loan. So, that interest rate at which the banks pay to the RBI is called Repo rate.
Impact of Repo rate hike on banks and banks rates.
So, the repo rate increase means, the banks need to pay more interest to the RBI. So, for the banks it is time to increase the revenue. The source of revenue to banks is Public. So, banks calculate their earnings, profits and then increase their source of income from lending (home loan, personal loan, etc) by increasing the lending rates.
Repo rate hike and the Banks Home loan, auto and other personal loan interest rate hike –
Earlier this week, some banks, including the State Bank of India (SBI), Punjab National Bank (PNB), HDFC and ICICI Bank increased their benchmark lending rates or MCLR by up to 10 basis points per cent, making loans costlier for consumers.
SBI chairman Rajnish Kumar said that it was good that the rate hike has been done with now. He does not anticipate further rate hikes this year unless global oil prices rise. “This is the time that they could have done the rate hike “ he told The Indian Express.
Every time there is a repo rate cut, SBI is the first bank to pass on the benefits to the customers by reducing the lending rates. Which is followed by other major banks like ICICI and HDFC.
This is the first time we have seen these major banks increasing the lending rates before the increase in the RBI repo rate. Hence, it is anticipated that within near period, there will not be any increase in the lending rates by the major banks like SBI, ICICI, HDFC, AXIS Bank.
The home loan interest rates were never below 9% before 2014. In the near recent times, the home loan interest rates have reached to the maximum of 8.7%.
So, it is still advantageous, for all those who want to buy home, go for home loans and get the best one that suits you better. As, though the repo rate has increased, the lending rates remain the same, atleast for a while.
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