Wake up to Equated Monthly Installment nightmare

The stage is now set for an across-the-board rise in interest rates with the Reserve Bank of India hiking both the cash reserve ratio (CRR) and repo rate by a steep 50 basis points to rein in prices and keep inflationary expectations at bay.

While new borrowers — be it for car, home or personal loans — will find it more expensive, existing borrowers of home loans at floating rates will have to live with extended tenures or higher monthly installments.

Commercial banks are expected to hike interest rates in the coming days to adjust the RBI move that has come four days after inflation hit double digits and touched 11.05 per cent last Friday, most of the rise coming due to higher fuel prices.

Repo rate — the rate at which the RBI lends funds to banks — has gone up from 8 per cent to 8.50 per cent, the highest in six years. CRR — the portion of deposits to be maintained by banks with the RBI — is being increased from 8.25 per cent to 8.75 per cent in two stages, sucking out another Rs 20,000 crore from the banking system.

The RBI steps are aimed at bringing down inflationary expectations by cutting down liquidity and increasing the cost of funds to all — banks and borrowers. The objective clearly is to curb credit and stem money supply that have grown more than the central bank’s indicative projections.

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