RBI's surprise repo rate hike: Loan EMIs seen rising, Sensex tanks 1,200 points

NEW DELHI Updated: May 04, 2022, 03:53 PM(IST)

A representative image. Photograph:( DNA )

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When the central bank raises interest rates or the repo rate (the rate at which banks borrow from the RBI), customer loans become more expensive as a result of the interest rate hike.

As a result of the Reserve Bank of India's (RBI) surprise repo rate hike of 40 basis points amid strong inflation, monthly instalments (EMIs) are projected to rise.

The Reserve Bank of India upped its repurchase rate to 4.40 percent, from the record low 4 percent it had been held at for the past two years to boost the economy, in its first unannounced rate change since the pandemic's peak.

A variable rate loan's EMI fluctuates in response to changes in market interest rates. If market rates rise, the repayment amount rises as well. When interest rates drop, so do the dues.

When the central bank raises interest rates or the repo rate (the rate at which banks borrow from the RBI), customer loans become more expensive as a result of the interest rate hike.

This is due to the fact that banks must purchase funds from the central bank at higher prices, forcing them to raise their lending rates.

Sensex crashes by over 1,200 points

The Sensex plummeted nearly 1,200 points in late afternoon trade on Wednesday after the Reserve Bank raised the benchmark lending rate to 4.40 percent in an effort to keep inflation under control.

At 3.30 p.m., the 30-share BSE benchmark had dropped over 1,200 points, or 2.2%, to below 56,000.

The Nifty of the National Stock Exchange fell 317.75 points, or 1.86 percent, to 16,751.35.

The Reserve Bank of India (RBI) raised the benchmark lending rate by 40 basis points to 4.40 percent on Wednesday in an effort to keep inflation under control, which has remained stubbornly over the 6% target zone for the past three months.

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