The Reserve Bank of India (RBI) is set to raise the key rate for the third consecutive time at its August bi-monthly policy meeting – the outcome of which is expected on Friday – as inflation based on consumer or Retail remains above the central bank’s upper tolerance limit of 6% for the sixth consecutive month in July. The decision to raise rates, in conjunction with other central banks around the world, could be seen as an effort to tame inflation that is fueling fears that the economy is slipping into recession.

Previously, the RBI raised the repo rate by 90 basis points in its two previous meetings. In August, the increase could reach 50 basis points, said an expert.

“The global geopolitical situation and high commodity prices indicate that inflation is likely to remain above the upper tolerance level of 6% in the first three quarters of 2022-23. 50 basis points of its monetary policy meeting this week to pacify rising inflation,” said Adhil Shetty, CEO of Bankbazaar.com.

The rise in rates has a direct impact on the monthly payments assimilated (EMI) of a mortgage or personal loan.

“The third hike would mean expensive home and personal loans. Parents managing education loans for their children will also feel the pinch of higher interest rates. Plus, your car and two-wheeler loans will get expensive. in the future,” Shetty added. .

The best way forward?

“The best path for borrowers would be to either opt for a higher EMI or make regular prepayments. There are several options to choose from, ranging from as little as one additional EMI per year to up to 5% of the principal outstanding each year. to reduce the burden of higher interest rates. Choose the alternative that best suits you taking into account your financial situation and debts,” added Shetty.

What else to expect?

Previously, the RBI task force proposed tough standards for digital lenders, including separate legislation to prevent illegal digital lending activities.

“In addition to rate reviews, RBI is also expected to make a critical policy announcement as a precursor to its detailed digital lending regulations,” he concluded.

RBI Governor Shaktikanta Das has said inflation may not fall to the upper end of its mandatory target range until December this year.

The central bank takes retail inflation into account in its fortnightly monetary policy. The government has instructed the RBI to ensure that inflation remains at 4% with a margin of 2% on either side.