How EMI loans and bank FDs could be affected by RBI’s interest rate hike

The Reserve Bank of India (RBI) today raised the repo rate by 50 basis points to 5.40%, reaching pre-Covid levels. Aiming to contain inflation by tightening liquidity in the market, the Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das on Friday raised the repo rate for the third consecutive time.

According to investment experts, this move by India’s central bank would help keep inflation under control and new bank depositors should get a higher return on their money. However, they said the RBI rate hike could become a costly affair for new borrowers and existing long-term retail loans linked to the Repo rate.

Talking about how the EMIs and fixed bank deposits (FDs) of its retail loan will be affected by the RBI’s decision to raise interest rates, SEBI-registered tax and investment expert Jitendra Solanki said: “After the RBI raised the key interest rates, banks are expected to raise interest rates on personal loans like personal loans, home loans, car loans, etc. at the same time, banks are expected to raise interest rates on bank deposits like FD bank and other term deposits, so the decision is bad news for borrowers and good news for depositors. A SEBI-registered expert said the move was aimed at containing inflation and therefore banks would soon have to raise interest rates on retail loans and bank deposits to extract money from the market.

Expecting the increase in interest rates on long-term retail loans to also have an impact on some existing borrowers, Manikaran Singhal, founder of, said: “Rising interest rates interest on long-term retail loans will also impact the monthly EMI of some existing these days banks give retail loans linked to redemption rate and in this case banks restructure the long-term lending, especially home loans and car loans. So in case a bank decides to increase the interest rate on long-term retail loans, then in that case the monthly EMI of the home loans, car loans and other long-term borrowers should increase if their loan is tied to the repo rate.”

On the impact of RBI’s decision on home loans, Anuj Puri, Chairman of ANAROCK Group, said: “A rate hike was expected, but the expectation was for a maximum of 35 basis points. The hike 50 basis points is definitely higher, and home lending rates will now move closer to the red zone.” He said the repo rate now stands at 5.4%, reaching pre-pandemic levels. While inflation has partially eased from the April surge, it remains above the RBI’s target.

“This is the third consecutive rate hike in the past two months and finally marks the end of the best low interest rate regime ever – one of the main factors that have boosted home sales. across the country since the pandemic. This blow is coming with the inflationary trends of primary raw materials including cement, steel, labor, etc. well into the first half of 2022,” Anuj said. Puri from ANAROCK.

On how his EMI home loan will change if banks decide to raise interest rates on home loans by 50 basis points,’s Manikaran Singhal said: “Maintaining the current interest rate on home loans is around 6%.If a borrower is granted a home loan of 35 lakh for a period of 20 years, then his monthly EMI at 6% amounts to approx. 25,000 whereas if the home loan interest rate is increased by 50 basis points in the future, the monthly home loan EMI would return 26,000. So this 50 basis point hike in mortgage interest rates will cost about 1000 per month. He said the rise in EMI will also impact existing borrowers if their home loan interest rate is flexible with RBI’s repo rate.

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