Homebuyers Alert! You could have to pay more interest on home loan EMIs; here’s why

The SBI Ecowrap report expects a 25 basis point (bps) rate hike each in June and August.

New Delhi: In what could be a setback for homebuyers who bought houses with the help of bank loans, they could soon have to pay more interest on home loan EMIs. The reason behind the increase in the interest rate on home loans is that the Reserve Bank of India (RBI) is likely to increase the repo rate by at least 25 basis points in June, according to a report by the State Bank of India (SBI). 

The SBI Ecowrap report said on Wednesday (April 13) that it expects a 25 basis point (bps) rate hike each in June and August, with a cumulative rate hike of 75 basis points in the (interest rate hardening) cycle. 

For the unversed, the repo rate is the interest rate at which the RBI lends funds to commercial banks. A hike in the repo rate will pressurise lenders to increase interest rates on home loans, car loans, personal loans and other types of advances. So, if you have taken a home loan on a floating interest rate, you may have to pay a higher interest rate towards your home loan. 

The RBI, in its monetary policy announced last week, left the repo rate unchanged at 4 per cent. The monetary panel had also decided to stay accommodative while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.

However, with the rising inflation, it must be getting tough for the RBI to keep the repo rate unchanged. For instance, retail inflation hiked to 6.95 per cent on yearly basis in March 2022 as compared to 6.07 per cent in February 2022 due to the sharp rise in food prices. Retail inflation is measured as measured by Consumer Price-based Index (CPI).

The Russia-Ukraine conflict has led to an unprecedented hike in inflation levels. The prices of food items such as wheat, protein items (chicken in particular), milk, refined oil, potato, chillies, kerosene, firewood, gold and LPG, among others, have increased sharply. Also Read: Teacher-turned Zomato agent delivering food on cycle gets new bike, thanks to 18-year-old boy

The pressure on sunflower oil supplies from Ukraine has led to changes in export policy from Indonesia, thereby leading to lower palm oil imports, the report said. Also Read: Realme GT 2 Pro first sale today: Check flagship phone’s price, specs and attractive launch offers