Chennai: A majority of middle class and salaried persons would be feeling the heat Reserve Bank of India (RBI) announced a surprise repo rate hike by 40 basis points amid high inflation levels.

Many say at a time when they are recovering from post Covid economic downfall, the Repo rate hike would br a big blow for them.

The implication of the repo rate hike would be felt across all categories of loans, both secured and unsecured, says an economic professor.

‘From a real estate point of view, this hike in policy rate is not welcome and will have a negative impact as home loan rates will increase immediately’, he adds.

All the loans that come under the repo-linked lending rate (RLLR), especially the home loan and the loan against property will now cost higher, he adds.

Another prominent builder in the city says, ‘An increase in repo rate has been expected on the back of very high inflation. Rising interest rates, along with rising prices of homes on account of high inflation, will have a significant negative impact on the real estate sector, as both impact affordability significantly.’

‘The increase in repo rate will likely have an impact on the industry as residential demand has been positively revived in the post pandemic context and needs to be fostered. It also goes without saying that the real estate industry’s perennial hope is fixed on lower interest rates as it improves affordability and also provides the required fuel for the growth of the economy along with the real estate sector, which is allied with several other industries,
A hike in repo rate by RBI often leads to a simultaneous hike in interest rates on loans given by banks.

Besides, the hike in CRR — which is the share of a bank’s total deposit that is mandated to be maintained by the RBI — is likely to put further pressure on interest rates.

Since banks will now need to park more money with the RBI, it will leave them with less funds to provide loans to consumers.

To put it simple, people paying EMIs should be prepared for rise in monthly payments as banks may start raising interest rate on loans soon.

However, now that the RBI has increased the repo rate, banks are likely to hike interest rates against home loans, car loans and others. If banks increase interest rates, then equated monthly installments (EMIs) will also go up, impacting borrowers, says s banker.

The RBI’s move to hike the repo rate may augur well for depositors who park their money in savings accounts and through fixed deposits (FDs). Banks are likely to offer greater interest to FDs.