The Reserve Bank of India (RBI) is set to release its important decision today. The announcement, made at the Monetary Policy Committee (RBI MPC Meeting), will be delivered at 10 am by RBI Governor Sanjeev Malhotra. The primary focus is on the announcement regarding the repo rate, as this will directly impact the Equated Monthly Installments (EMI) for home or auto loans.
Many experts predict an increase in the repo rate. If this occurs, the burden of monthly loan payments will rise.
According to reports concerning the RBI MPC meeting, several experts suggest that the Reserve Bank might raise the repo rate by 0.25%, or 25 basis points. If the RBI implements this anticipated repo rate hike, considering rising crude oil prices and inflationary risks, the repo rate would increase from 5.25% to 5.50%. This will directly affect both the EMI for home loans and the yield on Fixed Deposits (FD).
Previously, approximately 3.5 years ago, in 2023, the repo rate was increased by 25 basis points. The current meeting is the fourth MPC meeting of the Reserve Bank in 2026; three previous meetings kept the repo rate unchanged. In the April, June, and August meetings, the repo rate remained at 5.25%.
It is important to understand why experts expect a 25 basis point increase in the repo rate. The RBI MPC meeting takes place during a period when crude oil prices remain above $100 per barrel due to tensions in West Asia, which heightens inflationary risks.
The repo rate is the interest rate at which the RBI provides short-term loans to banks. Banks determine the interest rates they offer to their customers based on this rate. The RBI MPC holds a three-day meeting every two months. Changes in the repo rate directly affect borrowers. The reason is that if the repo rate rises, it becomes more expensive for banks to borrow from the RBI. Consequently, banks may pass this cost onto customers or make loans more expensive. Conversely, when the repo rate decreases, loans become cheaper, and the EMI burden lessens.
Experts estimate that if the RBI announces a 25 basis point increase in the repo rate on Wednesday, it will impose a certain financial strain on borrowers. The calculation is straightforward. Suppose a person took out a home loan of 50 lakh rupees over 25 years at an interest rate of 7.50%, and their monthly payment is about 36,950 rupees. If the repo rate potentially increases to 7.75% afterward, the monthly payment will rise to 37,766 rupees, representing an additional expense of 817 rupees monthly. It should be noted that a repo rate hike does not cause an immediate change in EMI; it takes effect on the loan's 'reset' date with the bank.
While a repo rate increase may increase financial pressure on customers taking home or auto loans, it could benefit those placing funds in fixed deposits. If the repo rate rises, banks often increase FD interest rates by 0.25%, providing higher returns for new depositors. However, there remains uncertainty as to whether the repo rate will increase or if the Central Bank will decide to keep it unchanged. The announcement is expected at 10 am.