Mumbai, July 29: Get set to contribute to the inflation war effort.

Home loan borrowers will soon have to pay more by way of equated monthly instalments (EMIs) with the RBI announcing an unexpected increase in a key rate as part of its drive to rein in inflation.

Banks and housing finance companies are set to raise interest rates on home loans by at least half a percentage point after the RBI raised a benchmark interest rate — the repo — by 50 basis points to 9 per cent.

The rate tweak would drive up the cost of home loans, auto loans and even loans to companies.

Both private sector and nationalised banks are likely to raise their prime lending rates (PLRs), which serve as a benchmark for the rates charged on various loan categories.

“We haven’t taken a decision yet, but it is certain that interest rates on home loans will go up by at least half a percentage point. The increase will cover new borrowers and existing ones,” said a senior official from a leading private bank.

For every half a percentage point increase in the interest rate, the EMI of a borrower rises by Rs 34 per month per lakh for a loan with a tenure of 20 years.

Back in June, key players in the housing finance segment had raised interest rates.

HDFC, the market leader, had increased interest rates by 50 basis points for all existing floating rate borrowers. In the case of new borrowers, the hike was around 75 basis points on floating as well fixed rate loans.

After this increase, the adjustable rate for new borrowers was 11 per cent, while the fixed rate went up to 14 per cent. ICICI Bank and the State Bank of India also raised home loan rates by 50 to 75 basis points.

Despite such a sharp hike enforced recently, bankers felt that interest rates would jump as cost of funds would go up and the burden would be passed on.

“Markets tend to react conservatively when faced with such tightening policies from the central bank. So, it is not entirely surprising to find the interest rate structure of the banking system going through a dynamic review and adjusting to the evolving market realities,” said Chanda Kochhar, the joint managing director of ICICI Bank.

Kochhar’s comment is a clear indication that the country’s largest private sector bank will soon raise lending rates.

Officials from Union Bank of India, Bank of India and Punjab National Bank also said their asset-liability committees would meet shortly to discuss a rate revision.

Savers may, however, have reason to rejoice. “Deposit rates could also go up,” said Harihar Krishnamurthy, the country treasurer at Development Credit Bank.