The Reserve Bank of India has opted to temper growth to curb inflation but its consequences for the aam aadmi who have taken a loan to buy a home is going to be painful. Repayments of housing, auto and other personal loans are set to become even costlier with the central bank declaring an all-out war against inflation and aggressively hiking key rates in its quarterly review of the monetary policy.

Equated monthly instalments (EMIs) of all kinds of personal loans and their tenures are set to rise again after the RBI sprang a surprise and attempted to temper price and growth expectations by hiking both cash reserve ratio (the portion of deposits to be kept with the RBI) and repo rate (the rate at which RBI lends funds to banks). While the market and borrowers — who are already hit by double-digit inflation at 11.89 per cent — were undecided whether the central bank would do anything at all, it opted to hike the CRR by 0.25 per cent and the repo rate by 0.50 per cent, taking both rates up to 9%. The CRR is now at an eight-year high and the repo the highest in seven years.

“Every time a medicine is given, people find it bitter, but in the end everybody wants to be healthy,” said Reddy after the announcement.

Back of the envelope calculations show that repayments may increase by over Rs 3.5 lakh over a 20-year period on a Rs 20 lakh home loan, if bankers hike interest rates by up to 1 per cent. Consumers may have to shell out up to Rs 1,500 more every month for a home loan of Rs 20 lakh, if interest rates go up by 0.5-1 per cent.

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