Kochi, Keralam: The Reserve Bank of India (RBI) on October 7, 2026, increased the repo rate by 25 basis points, from 5.25 per cent to 5.50 per cent, in a bid to curb inflation.
RBI repo rates, or central bank rates, are the interest rates at which commercial banks in India borrow money from the RBI, backed by government securities. It is one of the central bank’s primary tools to control inflation. Thus, whenever the repo rate changes, it affects the cost of funds across the country’s banking system.
In this context, financial expert Nikhil Gopalakrishnan, CEO of Pentad Securities, explains how the situation affects the common people of this country. According to Gopalakrishnan, the current repo rate hike comes after nearly four years. The move comes amid geopolitical tensions and a subsequent rise in crude oil prices, adding to inflationary pressures, particularly through higher oil and food prices.
He also points out that various financial analyses and reports suggest there could be a further 0.25 percentage point hike in the repo rate by the end of this year.
With the change in the repo rate, interest rates on loans are also likely to rise. The major impact will be felt by those who have taken loans, particularly long-duration loans such as home loans.
Most borrowers may have opted for floating or variable interest rates. Gopalakrishnan says, in such cases, a rise in interest rates could result in higher monthly EMIs. Banks usually notify customers about changes to their repayment schemes, but many borrowers may not pay close attention to such notifications.
Ideally, borrowers should consider opting for a higher EMI to manage the increase in interest rates, rather than extending the loan tenure, if financially possible.
Ideally, one should opt to pay a higher EMI to tackle the situation rather than going for an increased tenure, if possible.
In the current situation, for example, if one has taken a Rs 30 lakh housing loan, their EMI might increase by around Rs 500.
If that Rs 500 isn’t paid monthly, it may compound and lead to the housing loan being extended by six more months, thus delaying the loan closing time. Ideally, the borrower should speak to the bank and find out how much the EMI has increased. After assessing the ability to pay, give standing instructions for the updated EMI payment.
This is applicable for gold loans too. Checking whether the loan is taken at a floating interest rate is the first step in financial management.
The financial expert also notes that while planning to invest in a property and considering taking a loan for the same, borrowers should be mindful of the increased EMIs.
In the present scenario, NRIs (Non-Resident Indians) may also be concerned about the falling value of the rupee. They need to assess where their money needs to be allocated immediately and act accordingly.
For the time being, gold and silver will face slightly lower demand in general, as fixed deposits (FDs) and other bonds may provide higher interest returns. Adding to that, as part of global tensions and the US dollar gaining momentum, gold rates might also escalate further.
The debt funds in mutual funds may see decreased rates for a while as the value of the bonds will increase. Equity funds will get slightly affected by market fluctuations too. But those investing in SIPs (Systematic Investment Plans) can continue with them, as they won’t be affected much for long-term plans.
Those who have pre-existing FDs won’t be affected much, as they might have agreed to the interest rate for a specific period, and that won’t create any change. But those who are renewing the FD or those who are opening a brand-new FD will get the benefit of new rates; this too needs to be cross-checked with their respective banks.