The Reserve Bank of India RBI hiked the repo rate by 50 basis points to 5.40 per cent on Friday to contain a surge in borrowing rates and some will increase their rates after the hike by the central bank.
For any financial institution including NBFCs Cash in the Inventory. NBFC must borrow money from the market and then lend to customers. With the increase in borrowing cost NBFC has to increase the lending cost to maintain profitability. Interest rates are usually variable and are linked directly or indirectly to Repo cost. NBFC changes the lending rate when the Repo rate is changed by the government. Anshu Agarwal, Finance Head India of Branch International, said that the increase in lending rate will lead to an increase in the duration of the loan.
As the central bank increases the repo rate, it is worrisome for existing and upcoming borrowers as their EMIs and interest rises.
According to the norms, the RBI's repo rate is required to link the interest rates with an external benchmark. There is a chance that the bank deposit rates will increase, bringing some relief to the common man.
After the rate hike by the central bank, the timing of taking the loan is crucial for home loan borrowers as they usually borrow at floating rates.
Amit Goyal, CEO, India Sotheby's International Realty said that home loan rates are now expected to settle around 8 per cent per annum, which could cause a short-term psychological dent on the demand for the mid and affordable housing segment, but we won't see that continuing for long.
The monetary policy committee of the Reserve Bank of India voted to increase the policy repo rate by 50 basis points to 5.40 per cent.
The Standing Deposit Facility SDF rate was adjusted to 5.15 per cent, and the Marginal Standing Facility MSF rate and the Bank Rate adjusted to 5.65 per cent.
This is the third consecutive rate hike by the central bank this year after a 40 basis points hike in May and 50 basis points in June. The rate has gone up by 140 basis points since May this year, due to Friday's hike.
The central bank has retained its projection for GDP at 7.2 per cent, with Q 1 at 16.2 per cent, Q 2 at 6.2 per cent, Q 3 at 4.1 per cent and Q 4 at 4.0 per cent, with risks broadly balanced. The real GDp growth for Q 1 FY 24 is projected to be 6.7 per cent.
The projections for the 2022 -- 23 remain unchanged at 6.7 per cent, Q 2 at 7.1 per cent, Q 3 at 6.4 per cent and Q 4 at 5.8 per cent, with risks evenly balanced. CPI for Q 1 FY 24 is projected to be 5.0 per cent.