Policy Rate Hike- Impact on Home Loan Minimum
The inflation rate has been high over the last few quarters. There are many factors behind this. The government and the Reserve Bank of India (RBI) are taking cautious steps to control the rising inflation rate while ensuring minimum impact on the economic growth rate. The RBI has implemented monetary policy tightening steps many times over the last one year.
However, the inflation rate is still not under control due to the rising commodity prices in the international markets - crude oil, coal, nonmanufacturing products etc. An uncontrolled inflation rate has an adverse impact on the overall economy, and therefore, the RBI is trying to keep it under control.
When the RBI increases its policy interest rates, it signals rise in the costs of funds for commercial banks. The banks pass on the additional costs to the borrowers (individual as well as corporate borrowers) by increasing their base interest rates.
When the banks increased their base rates, interest rates on various loans (home loans, consumer goods loans, automobile loans etc) go up automatically. The interest rates on loans are directly or indirectly linked to the base rates. The interest rates on new loans will also go up as they are linked to the base rates.
The RBI has done a good job of implementing the monetary tightening measures in small, staggered steps and has ensured a minimal impact on borrowers and businesses. The RBI has increased the policy rates eight times since the last five quarters.
The rate hikes are implemented in the smallest possible steps at regular intervals. This way, the rate hikes has increased the interest burden on corporate as well as individual borrowers gradually and not sharply. It is therefore manageable and the EMIs don’t shoot up for home loan borrowers.
Quick Bytes:
However, the inflation rate is still not under control due to the rising commodity prices in the international markets - crude oil, coal, nonmanufacturing products etc. An uncontrolled inflation rate has an adverse impact on the overall economy, and therefore, the RBI is trying to keep it under control.
When the RBI increases its policy interest rates, it signals rise in the costs of funds for commercial banks. The banks pass on the additional costs to the borrowers (individual as well as corporate borrowers) by increasing their base interest rates.
When the banks increased their base rates, interest rates on various loans (home loans, consumer goods loans, automobile loans etc) go up automatically. The interest rates on loans are directly or indirectly linked to the base rates. The interest rates on new loans will also go up as they are linked to the base rates.
The RBI has done a good job of implementing the monetary tightening measures in small, staggered steps and has ensured a minimal impact on borrowers and businesses. The RBI has increased the policy rates eight times since the last five quarters.
The rate hikes are implemented in the smallest possible steps at regular intervals. This way, the rate hikes has increased the interest burden on corporate as well as individual borrowers gradually and not sharply. It is therefore manageable and the EMIs don’t shoot up for home loan borrowers.
Quick Bytes:
- The rising inflation in the past few months has made the RBI implement many monetary policy tightening steps.
- Factors such as rising commodity prices in the International Market is a major cause for Inflation.
- While implementing the monetary tightening measures. RBI has taken small steps to ensure minimum impact on borrowers
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