Your home loan EMI is likely to go up, as the Reserve Bank of India, after a gap of over four years, has increased the repo rate by 25 basis point to 6.25 per cent. The reverse repo rate has also been increased by 25 basis points to 6 per cent. One basis point is one-hundredth of a percentage point. Also Read - RBI Slaps Penalties on Bank of India, Karnataka Bank For Non-compliance With Certain Norms

How much can it affect your home loan EMI? An increase in the key policy rate will now force banks to adjust their lending rates. This could lead to an increase in the borrowing cost. To give you an idea, if banks decide to pass on the entire rate hike to customers, your EMI on a home loan of Rs50 lakh having the interest rate of 8.5 per cent can increase by more than Rs 750 per month at Rs 42,603 from the previous EMI of Rs 43,391. Also Read - Coronavirus Recession: India's GDP Likely to Contract 5% in FY21: Crisil



Terming the rate hike as ‘justified’ on account of inflationary trends, global hardening of interest rates as also petroleum prices moving upwards, Niranjan Hiranandani, President NAREDCO, said the hike of 0.25 basis points in the repo rate would not make a major difference to real estate. He added that in the long run, “we would prefer rates coming down”. Also Read - Malls Lose Rs 90,000 Crore in 2 Months, SCAI Seeks Adequate Relief

State Bank of India (SBI), recently increased its marginal cost of lending rate (MCLR) rate by 10 basis points. For the period of one-year, SBI MCLR is now at 8.25 per cent. For two -year period, the MCLR rate is now 8.35 per cent against the rate of 8.25 per cent.



MCLR is calculated on the incremental cost of funds. Banks offer different MCLR rates ranging from overnight, one month, three month, six month to one year. The MCLR rate is declared every month by banks but for customers, it is reset only after the end of the chosen term.

The positive side is with an increase in the repo rate, fixed deposit rates might increase, too. The likely hike in interest rates would help banks in shoring up their deposits, which have been facing decline post demonetisation.