The recent hike in repo rate by the Reserve Bank of India (RBI) by 0.25% will have a direct impact on fixed deposits, loan equated monthly instalments (EMIs) and real estate prices. Now, the repo rate is 6.5%.
Fixed Deposits (FDs): It is expected that the spike in FD interest rates would continue for some more time. However, it is pertinent to note that not all banks have increased their FD interest rates along with the subsequent hikes in repo rate. Banks are most likely to take some time to raise the FD rates further.
At the moment, top nationalised and private banks offer an interest rate, which is anywhere between 3-6.35%. In the case of two years FDs, the interest rate is anywhere between 6.75-7.5%.
Loan EMIs to rise: Bank depositors and new loan borrowers will be impacted by the recent repo rate hike. With the rise in repo rate, banks raise the interest rate on their various loans to consumers.
Retail loans will be impacted as banks raise the interest rate, while also leading to increasing in the tenure of the loan. Moreover, a higher remaining tenure of the loan is proportional to a higher EMI.
Real estate: The repo rate rise will influence the banks to raise lending rates impacting the quantum of home loan off-take and pushing EMIs upwards. The EMI-driven real estate market will thus experience a cumulative effect. This will have an impact on the sales velocity in the real estate market. Also, the cost of borrowing for both developers and home-buyers will be impacted. The end result would be rate hikes across the spectrum.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.