Home, personal, and vehicle loans, along with existing EMIs, may become more costly going forward, as market experts and industry veterans predict a rise in the repo rate in the coming RBI MPC Meetings. Uday Kotak, a financial services veteran, saw a potential uptick of up to 0.75 per cent.
"We have seen the first move by the RBI. I see another 50 to 75 basis points movement up on interest rates," Uday Kotak, the founder and non-executive director of Kotak Mahindra Bank, said in a video message posted by the group's broking arm on Thursday, November 5.
He said that the Reserve Bank may increase the repo rate by another 0.75 per cent as part of the current rate hike cycle.
Earlier, in October, RBI’s monetary policy committee hiked the repo rate by 25 basis points, taking it to 5.50 per cent after the six members voted unanimously in favour of a rate hike amid mounting inflationary pressure.
How Repo Rate Impacts Loan Rates, EMIs
The impact of a 25 basis point rise in the repo rate by the RBI's MPC weighed on borrowers as banks, including Punjab National Bank, Indian Bank and Bank of Baroda, and others announced an increase in their lending rates last month.
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This will cost more to new borrowers, while existing EMIs will also increase as the majority of loans are now repo rate-linked.
Why Rate Hikes Are Possible
The MPC changed its stance to ‘Calibrated Tightening' from neutral, which is a ‘ Decisively Hawkish ’ move. The stance eliminates any chances of a rate cut in the near future and reflects surrounding concerns about rising inflation and elevated crude prices.
Rahul Singh, CIO - Fixed Income at LIC Mutual Fund, earlier last month noted that the MPC has turned decisively hawkish, raising the repo rate by 25 bps to 5.50 per cent and shifting its stance to calibrated tightening, effectively taking near-term rate cuts off the table.
“The move reflects growing concerns around inflation, with higher crude prices, monsoon risks and currency weakness, prompting the RBI to raise its FY27 CPI forecast to 5.2%,” Singh noted.
Inflation And Crude Rates
The Reserve Bank of India (RBI) governor Sanjay Malhotra announced in his MPC address that the projection of headline Consumer Price Index (CPI) inflation for FY2026-27 (FY27) to be at 5.2 per cent. RBI raised it from its previous projection of 5.0% due to persistent food and crude oil pressures.
Meanwhile, as per the RBI, retail inflation is projected to be at 4.9 per cent for Q2 FY27, 6 per cent for Q3 FY27, 5.7 per cent for Q4 FY27, and 5.6 per cent for Q1 FY28.
At the same time, Crude prices remained elevated due to geopolitical concerns. These two factors could be fuel for the rate hike in the coming months.