Higher Inflation Is Expected in Q3 2023: Here’s How to Deal With It as Repo and Loan Rates Rise

The world’s largest provider of investment banking and financial services, Morgan Stanley, forecasted on July 2, 2023 that increasing food prices will cause India’s retail inflation to reach 6.2% by the end of September 2023.

The Reserve Bank of India (RBI) may increase repo rates as a result of this. As a consequence, it is anticipated that interest rates on loans, including equivalent monthly instalments (EMIs) for personal, auto, and house loans, would increase. Let’s look at some methods you may use to efficiently manage your debt obligations while coping with any possible inflationary strain.

Expectation of higher inflation

Morgan Stanley, a leader in investment banking and financial services, has predicted that India’s retail inflation would increase to 6.2% in the quarter ending September 2023, citing growing food prices.

“The rise in food inflation, which is mostly reflecting greater inflation in vegetables and to a lesser extent in pulses and grains, is the key factor driving the upside. According to the research, “We anticipate core inflation to hold steady and remain largely range-bound at 5-5.2 percent.”

In a study, the credit rating agency Crisil also noted how increased pressure on food prices had led to greater retail inflation in July 2023. The US Federal Reserve’s recent increase in interest rates will certainly have an impact on RBI’s interest rate forecast.

Therefore, borrowers may take into account a number of tactics to combat a prospective rise in loan rates.

Adaptation Techniques for Borrowers

Effective Debt Management: To make payments simpler and maybe decrease the interest rate, think about consolidating your debt by combining many loans into a single personal loan.

Prioritizing the repayment of higher interest bills may ease financial strain on borrowers with high-interest debts, such as credit card loans, and provide them breathing room to concentrate on lower interest debts.

Refinancing: To learn more about the effects of rate increases and rising loan EMIs, talk to your lender. To alter the loan duration, interest rates, and EMI payments in accordance with the interest rate regime, one might then refinance the loan with the current lender.

Given the sound macroeconomic fundamentals, the present high rates brought on by external pressures are unlikely to endure for an extended period of time. Therefore, it is preferable that you refinance your loan with your current lender rather than looking for a new one if you need to, since the related costs, such as application processing and so on, would be very high.

Balance Transfer: To minimize the total loan cost, consider shifting your house loan to a different lender, such as non-banking financial firms (NBFCs) to banks providing cheaper interest rates.

Consider the overall payback amount, costs, and savings as you carefully weigh the pros and downsides. When switching home loans, weigh the advantages of fixed versus adjustable interest rates. Check for prepayment fees from the current bank and foreclosure fees at the new lender you’re thinking about switching to if you want to transfer the loan.

According to a ruling by the RBI, variable rate loans cannot include prepayment penalties.

In summary, because increased inflation is probably on the horizon, borrowers must take the initiative to manage their loan obligations by implementing effective measures.