RBI's repo rate: How it affects your home loan EMIs

At the end of its three-day, bi-monthly discussions on October 6, the Monetary Policy Committee (MPC), led by Reserve Bank of India (RBI) Governor Shaktikanta Das, opted to hold the repo rate steady at 6.5%.

Any change in the repo rate has a lot of consequences for borrowers.

Here is how it can affect you Equated Monthly Installments (EMIs).

What is the repo rate?

The repo rate, or repurchasing option rate, is the rate at which commercial banks borrow money from the RBI.

How does the repo rate affect home loan EMIs?

A borrower’s home loan and EMI are dependent on the repo rate.

When the central bank alters the repo rate, commercial banks change their interest rates.

A rise in the repo rate leads to a hike in home loan EMIs as commercial banks also increase their interest rates. It also means an increased burden on the borrower.

If the RBI lowers the repo rate, banks are mandated to bring down their interest rates as well. This means the customer will have a reduced burden of loan repayment.

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