Car rates

Home, car loans could become more expensive and you could earn less on fixed deposits

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is ready to reveal what awaits the economy later today. It is the MPC’s first fortnightly review since its surprise decision to raise the repo rate – the rate at which the RBI lends money to commercial banks – by 40 basis points.

The RBI is widely expected to announce a 50 basis point hike on June 8, at a time when major central banks have planned aggressive COVID-era interest rate hikes to combat worsening inflation without hurt economic growth.

What is the impact of the repo rate on deposit and lending rates?

The repo rate is the policy rate that determines the interest rates offered by commercial banks to borrowers and depositors. A higher lending rate forces banks to pass on the increased cost of borrowing to their customers, and vice versa.

Where to expect the repo rate in the coming months?

As many as 80% of respondents to a CNBC-TV18 poll expect the repo rate to rise by 50 to 100 basis points by August itself. Most respondents expect the repo rate to peak at 5.5-5.75% in the current tightening cycle.

A year from now, the policy rate is expected to be 50 to 100 basis points higher in markets and mandates given high inflation and the resulting policy tightening, senior economist Upasna Bhardwaj told head of Kotak Mahindra Bank.

So where can you expect interest rates for fixed income securities and home loan rates?

Any increase in the repo rate could lead to lower interest rates applicable to savings and time deposits and, on the other hand, make mortgages and car loans more expensive.

According to Sanctum Wealth’s Manish Jeloka, the quantum of changes in fixed income and mortgage rates should go hand in hand with RBI rate hikes.

“These assumptions pose downside risk given the impact of recent government trade measures on local prices. Any easing of supply chain issues will also put downward pressure on inflation and remove the need high rate hikes,” he told .

Where are the FD and mortgage rates currently?

For example, currently when the repo rate is 4.4%, the State Bank of India (SBI) – India’s largest lender by assets – has interest rates between 2.9 and 5.8% for fixed or term deposits with a maximum duration of five years.

SBI offers regular home loans at 7.05-7.55%, depending on the borrower’s credit rating.
Target score Term loan interest rate
>=800 7.05
750-799 7.15
700-749 7.25
650-699 7.35
550-649 7.55
New Credit/No Score 7.25

ICICI Bank, HDFC Bank and Kotak Mahindra Bank offer home loans of Rs 50 lakh to salaried or self-employed customers at 7-7.85%.