Sky-High Interest Rates: Strategies For Borrowers

In May 2022, soon after geopolitical concerns took centrestage and the Covid threat started abating, the Reserve Bank of India (RBI) increased repo rates for the first time after 31 months to control inflation. Ever since, RBI has been on a rate hike spree, pausing only recently in April 2023, with an indication that this may not be the end of the rate hike cycle yet. In the last one year, the central bank has raised interest rates by 2.5 per cent or 250 basis points (bps), and repo rates have reached the 6.50 per cent level after four and a half years. The 2.5 per cent number may not look alarming, but it has left a trail of misery for borrowers who have seen equated monthly instalments (EMIs) go up by a huge 20 per cent for a home loan amount of Rs 50 lakh over a period of 20 years, at the cost of compromising with other expenses or remaining indebted for a longer period. The recent...