EMI of Home and Car Loan Will Increase, RBI Might Again Increase The Repo Rate

The Monetary Policy Committee (MPC), which sets the RBI's rate, will begin its three-day deliberations from today. The decision of the MPC will be pronounced on February 8. Kotak Institutional Equities said in a report that global inflation is moderating, although inflation is still well above the target of each central bank. According to the report, inflation is likely to moderate further in the next few months. With this, the rate hike phase will end by the first half of 2023. After this, rate cuts may start in late 2023 or early 2024.

The government has entrusted the RBI with the responsibility of keeping inflation at the level of six per cent (two per cent up or down). Inflation remained above 6 per cent for three consecutive quarters from January 2022. There was some relief in November and December 2022. On his expectations from the MPC, Housing.com's Group CEO (CEO) Dhruv Agarwal said that the RBI would probably stick to a modest increase in the repo rate in the upcoming policy announcement. He said that in 2023, the rate hike may stop. Amita Vaidya, director of the Mumbai-based Sarla Anil Modi School of Economics, also said that the Monetary Policy Committee may relax some of its tight stance. He said that the negative trend of the global economic scenario is still continuing, but the domestic economy is showing speed and combativeness. He has predicted a 0.25 percent increase in the policy rate in the upcoming review.

Repo rate can be understood in simple language like this. Banks give us loans and we have to pay interest on that loan. Similarly, banks also require huge amount of money for their day-to-day operations and they take loan from Reserve Bank of India (RBI). The rate at which the Reserve Bank charges interest on this loan is called the repo rate. When loans are available to banks at low interest rates i.e. repo rate is low, then they can also give cheap loans to their customers and if the Reserve Bank increases the repo rate, it will become costlier for banks to take loans and they will make loans costlier for their customers.