RBI repo rate hiked: How will it impact FDs, EMIs, loan interests

The Reserve Bank of India (RBI) on Wednesday hiked repo rate to a two-year high.

The Reserve Bank of India (RBI) on Wednesday raised the interest rate by 50 basis points to a two-year high of 4.9 per cent as it doubled down to tame inflation that has surged in the last couple of months in Asia's third-largest economy.

This is the second hike in the repo rate in as many months. The rate hike comes on the back of a 40 bps increase effected by the RBI at an unscheduled meeting on May 4.

All the six members of the Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, unanimously voted for the latest rate hike.

Repo rate stands for the repurchasing option rate. It is the rate at which the RBI lends money to commercial banks.

Whenever the RBI increases the repo rate, banks generally follow it by hiking interest rates on home loans, car loans and others. If banks increase interest rates, then equated monthly installments (EMIs) automatically go up, impacting borrowers.

However, when the RBI hikes the repo rate, it is likely to augur well for depositors who park their money in savings accounts and through fixed deposits (FDs). Banks are likely to offer greater interest to FD accounts.

"Interest rates are on the rise on back of persistent inflation and a moderate RBI policy of raising rates and easy liquidity. Banks will gradually raise rates and that will lead to higher EMIs," said Sandeep Bagla, CEO of Trust MF.