RBI Governor Shaktikanta Das said the worst phase of inflation is behind us amid frequent hikes in the repo rate to check the sharp rise in prices. But, even now there is no scope for laxity on this front. Inflation is coming down in India vis-à-vis the world due to softening commodity and crude oil prices, he said. Even so, we have to be extremely careful. If necessary, we will also have to take action. That is why I say the fight against inflation is not over and there is no room for complacency.
After the RBI's three-day Monetary Policy Committee (MPC) meeting, the governor on Wednesday defended the downgrade in the economic growth forecast, saying the data showed that the worst of inflation is behind. RBI will keep an eye on domestic factors and upcoming data. He said that due to high inflation, the central bank is increasing interest rates. Retail inflation has remained above the RBI's comfortable level of 6 percent for the last 11 consecutive months.
See it as a sign of moderation: Patra
Deputy Governor Michael Patra said the RBI endeavors to first bring down inflation below a comfortable level of 6 percent. The increase in the repo rate from 0.50 percent to 0.35 percent should be seen as a signal of softening from the central bank. However, the fight against inflation is not over yet and hence we maintain our neutral stance. Importantly, we have reduced the quantum of change in the policy rate. This is the most important thing.
EMI has increased by 23 percent on a loan of 30 lakhs
Due to the increase in the repo rate, the monthly installment (EMI) of consumers on a loan of Rs 30 lakh for 30 years has increased by 23 percent since May this year. Similarly, if you have taken a home loan of Rs 30 lakh at 7 percent interest for a tenure of 20 years in March this year, the interest rate will now rise to 9.25 percent after the latest increase in the repo rate. With this, your EMI will increase by 17.75% from Rs 23,258 to Rs 27,387. This increase will be reflected in the EMI due in January 2023. Apart from this, the monthly installment of the consumer who has taken a home loan on a floating rate will increase further.
... then the loan period will increase by 13 years
If a consumer has taken a home loan at 6 percent interest in March, then after the increase in the repo rate by 1.90 percent, his loan rate has also increased to 7.90 percent. In such a situation, if you do not increase the EMI, then the loan tenure of 20 years will increase to 13 years and 33 years. If you select to increase the EMI instead of the tenure, the monthly installment will increase by 20%. The impact on short-term loans will be minimal. The monthly installment will increase only by 9.96 percent if the loan tenure is 10 years.
Even a 10 percent increase in salary is less to pay the increased EMI
Banks generally keep the EMI below 50 percent of your in-hand salary. If a person's salary is Rs 62,000 and he has taken a home loan of Rs 40 lakh for 20 years at 7% interest in March 2022, then his EMI becomes Rs 31,012. This is around 50 percent of his net salary.
However, considering the impact of the 2.25 percent increase in the repo rate, the interest rate will go up to 9.25 percent in January 2023. With this, his monthly installment will also increase to Rs 36,485.
If the salary remains constant, then 59% of it will be spent on your EMI. Even a 10% increase in salary will not be enough to compensate for the increased EMI.
If you have investments that are earning returns lower than the interest rate paid on the home loan, some amount should be deposited as principal. This will put a stop to the extended period. For example, if you pay 5% of the total loan every year, you can pay off a 20-year loan in 12 years.
Also Read: RBI Repo Rate: RBI increased the repo rate by 0.35% to 6.25%, so your loan EMI will increase further
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