SBI report warns of repo rate hike in October, costlier EMIs likely

If you have a home loan, car loan or an education loan from a bank, this concerns you. A report by SBI Research says the RBI could raise the repo rate in October, which would have a direct impact on borrowers.

EMIs form a large part of the monthly household budget, and even a small change in interest rates can upset the calculations. SBI Research's Ecowrap report has flagged the possibility that the RBI could raise the repo rate in the coming months, adding to the burden on borrowers.

According to the report, the RBI could raise the repo rate by 25 basis points in October. It also expects another 25 basis point increase in December. If these projections hold, the repo rate would have risen by a total of 50 basis points by December.

The likely reason for the increase is rising crude oil prices. Amid escalating tensions in the Middle East, crude oil prices have crossed 100 dollars a barrel. The report warns that if crude prices do not fall, inflation could rise further. According to SBI Research, if oil prices stay high, inflation could reach 6.5 percent or more in October-November.

The question now is what happens if the RBI does raise the repo rate. Borrowers with loans on a floating interest rate could see their EMIs change, meaning they may have to pay more each month than before. However, how much the EMI rises will depend on how much banks change their own interest rates.

Those with ongoing loans should keep a few things in mind. First, check the current interest rate on your loan and whether it is on a floating or fixed rate. Also ask your bank how much your EMI could rise if interest rates go up, so you can plan your monthly budget accordingly. Those planning to take a new loan should compare EMIs across different banks before deciding.