The Reserve Bank of India (RBI) has increased the repo rate by 25 basis points to 6.50 per cent. Consequently, the reverse repo rate also hiked to 6.25 per cent. The increase in key interest rate will have a direct impact on your EMIs, as banks are expected to soon increase their lending rates.
Repo rate is the rate at which central bank lends to other banks. Reverse repo rate is the rate at which banks lend to the central bank.
To give you an idea, if you have a loan of 30 lakh at an interest rate of 8.5 per cent, then your EMI is likely to go up by Rs 477 from Rs 26,034 to Rs 26,511. For a loan of Rs 75 lakh, EMI will go up by Rs 1,192 from Rs 65,086 to Rs 66,278.
The largest public sector bank, State Bank of India (SBI), increased its marginal cost of lending rate (MCLR) rate by 10 basis points just before the last monetary policy announcement in June. It is now to be seen when will the bank, which sets the trend for the market, will increase its MCLR.
For the period of one-year, SBI MCLR is currently at 8.25 per cent against the previous rate of 8.15 per cent. For two -year period, the MCLR rate is at 8.35 per cent against the rate of 8.25 per cent. It, however, increased its fixed deposit rates just a few days ago.
MCLR is calculated on the basis of the incremental cost of funds. Loans given before April 1, 2016, were linked with the base rate and it was calculated on the basis of the average cost of funds. From April 1, 2018, onwards, the bank regulator has, however, the linked the base rate with MCLR in order to integrate the movement of two rates. Banks offer you a set of at least five MCLR rates ranging from overnight, one month, three month, six months to one year. Banks have to declare these rates every month, but the revised rate becomes applicable to you after the end of the reset period.