The RBI repo rate decision is due at 10 am on Wednesday, with home-loan and vehicle-loan borrowers watching for a possible increase that could raise borrowing costs. Reserve Bank of India Governor Sanjay Malhotra will announce the decisions taken at the Monetary Policy Committee’s three-day meeting, according to Aaj Tak Business.
Economists cited in the report have estimated that the central bank could raise the repo rate by 25 basis points, or 0.25 percentage points, from 5.25% to 5.50%. The increase has not been confirmed by the RBI. The MPC could also decide to keep the rate unchanged, as it did at its previous three meetings in April, June and August.
The meeting is taking place amid concerns over inflation and higher crude oil prices. The report said crude prices have remained above $100 per barrel amid tensions linked to the war in West Asia, increasing the risk of higher input and transport costs. These conditions have contributed to expectations that the RBI may consider a rate increase while assessing price stability.
The repo rate is the interest rate at which the RBI lends to banks for the short term. Banks use policy rates, along with their own lending and funding conditions, when setting interest rates for customers. A higher repo rate can make borrowing from the central bank more expensive for lenders, increasing the possibility that banks will raise lending rates for new and existing borrowers. A lower repo rate generally creates room for cheaper loans and lower equated monthly instalments, although the final effect depends on the lender and loan agreement.
The possible impact can be seen through a home-loan example cited in the report. A borrower with a ₹50 lakh loan for 25 years at an interest rate of 7.50% would pay an estimated monthly EMI of about ₹36,950. If the lending rate rises to 7.75% after a 25-basis-point repo-rate increase, the EMI would rise to approximately ₹37,766. That would mean an additional monthly payment of about ₹817, assuming the loan tenure and other terms remain unchanged.
The effect would not necessarily appear immediately after the RBI announcement. For floating-rate loans, changes are generally applied according to the lender’s interest-rate reset date. The timing and scale of any change would therefore vary between banks and borrowers. Customers would need to check their loan agreements and lender notifications to understand whether a policy-rate change affects their EMI, loan tenure or both.
A rate increase could also affect fixed-deposit customers. If banks raise fixed-deposit rates by a similar 0.25 percentage points, people opening new deposits could receive higher returns. Existing deposits would generally be governed by the rate and terms applicable when they were booked, although the precise treatment depends on the product.
The RBI’s announcement will establish whether the repo rate changes from its current 5.25% level or remains unchanged. The decision will also indicate how the central bank is balancing inflation risks, crude prices and borrowing costs for households and businesses.
