RBI hikes repo rate. How will this impact your loan EMIs?

In its first Monetary Policy statement of 2023, the Reserve Bank of India (RBI) on Wednesday hiked the policy repo rate by 25 basis points to 6.5%. This was the sixth straight hike to the repo rate, which, in December last year, was raised by 35 basis points to 6.25%.

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The decision to raise the repo rate was approved by a 4-2 majority by the central bank's Monetary Policy Committee (MPC), said RBI governor Shaktikanta Das, who announced decisions made by the committee, which met for three days starting February 6.

Also Read | RBI repo rate hike: How will it affect fixed deposits (FDs)?

But, how does repo rate increase the common man? Here's how:

Loan EMIs to rise: The rise in repo rate – it is the interest rate charged by RBI when commercial banks borrow from it – will have a direct impact on loan borrowers and bank depositors. Now, banks too will raise the interest rate on retail loans, and usually also increase the tenure of the loan; the higher the remaining tenure of the loan, the higher the EMI.

Also Read | What are monetary policy, repo rate and reverse repo rate?

Overall, since May 2022, the repo rate has been hiked by 250 basis points.