RBI's sudden repo rate hike! Here are 4 major areas that will affect the common man

New Delhi: The Reserve Bank of India (RBI) has taken an unscheduled decision thereby increasing the repo rates by 40 bps to 4.40%, taking everyone off-guard. 

Repo rate is the rate at which banks borrow from the RBI. The move will raise borrowing costs for corporates and individuals because it is most likely that banks are going to pass on the burden of the hike to the customers. This means that Loans and EMIs will get expensive from now.

Here are 4 major areas where the common man will be affected by RBI's sudden rate hike

Interest on home loans

This rise in interest rates will ultimately impact overall acquisition cost for homebuyers - and may dampen residential sales to some extent. 

Anuj Puri, Chairman – ANAROCK Group said, "Unfortunately, for home buyers, this hike signals an imminent end to the all-time low interest regime, which has been one of the major drivers behind home sales across the country since the pandemic began."

Rising raw material cost to saddle residential sector

Rising interest rates and inflationary trends in basic raw materials in construction including cement, steel, labour cost etc. will add to the burden of the residential sector, which did significantly well in the previous quarter – Q1 2022, Puri has further said in his analysis.

Higher vehicle loans

RBI's move to increase the repo-rate by 45 basis points will make vehicle loans expensive, said a top official of the Federation of Automobile Dealers Association (FADA). 

While the passenger vehicle segment may be able to absorb this shock due to long waiting periods, the two wheeler segment is already reeling due to an underperforming rural market, vehicle price hikes and high fuel costs. High interest rates for vehicle loan due to RBI`s move will be an additional blow for this segment. Certainly, this move will slow the speed of auto retail and dampen the sentiments further, news agency IANS quoting Vinkesh Gulati said.

Further rate hike looks imminent

An SBI report has estimated that further rate hike by the RBI looks imminent. If rates are being constantly revised, it will only saddle the borrowers --meaning bigger burden of EMIs.

"With the current hike of 40 bps in repo rate to 4.40% it seems the rate cycle has made a U-turn (from the steep cuts seen in early 2020) and RBI would continue to increase the rates going forward and may reach the pre-pandemic level of 5.15% by end March 2023," the SBI report said.