RBI Keeps Key Lending Rate Unchanged: How It Affects Your Loan EMIs?

In its initial monetary policy review for the current financial year, the Reserve Bank of India (RBI) kept the repo rate unchanged at 6.5 % for the eighth consecutive time. This decision comes as the economy continues to show growth, allowing the central bank to focus on curbing inflation.

What is Repo Rate?

Repo rate, also known as the benchmark interest rate or policy rate, is the rate at which central banks lend money to commercial banks. This rate affects borrowing costs for businesses and consumers, as it influences the interest rates charged by commercial banks for various types of loans. 

How it affects your loan EMIs

1. With the RBI maintaining the key lending rate unchanged, it implies that there won't be any immediate impact on loan EMIs, and borrowers will continue to pay the same interest rates on their loans as before. 

2. If you have a fixed-rate loan, your EMIs won't change immediately. But if you have a floating-rate loan, your EMIs might change if banks adjust rates later.

3. People looking to take a home or car loan can still do so at similar interest rates.

4. If you already have a loan with a floating interest rate, this decision can predict your monthly payments, without worrying about sudden rate increases.

5. Even though rates are stable now, it is smart to stay updated on any future rate adjustments or economic shifts that could affect your loan payments.

How a change in repo rate impacts loan EMIs

If Repo Rate Slashed: When the RBI reduces the key lending rate, banks typically lower their interest rates on loans. Lower interest rates mean lower EMIs for borrowers. 

If Repo Rate Hiked: When the RBI increases the key lending rate, banks usually raise their interest rates on loans. Higher interest rates mean higher EMIs for borrowers.