RBI Keeps Repo Rate Unchanged: What It Means For Your Home Loan?

RBI MPC Meeting October 2023: Reserve Bank of India on Friday kept the report rate unchanged as was expected from many quarters of the industry.

Announcing the decision, RBI Governor Shaktikanta Das said that the monetary policy committee decided to keep the repo rate unchanged at 6.5 per cent unanimously.

He added that MPC will remain watchful of inflation and remains resolute to its commitment to align inflation to the targeted level.

The RBI Governor-headed six-member MPC, which began its deliberations on October 4, announced the bi-monthly monetary policy review today.

RBI started increasing the policy rate in May 2022 in tranches in the wake of the Russia-Ukraine war and took it to 6.5 per cent in February this year. Since then, it has kept the rate unchanged in the last three successive bi-monthly monetary policy reviews.

The repo rate was raised by 250 basis points cumulatively between May 2022 and February 2023.

Earlier experts believed that the was expected to maintain the status quo on the benchmark interest rate at its bi-monthly monetary policy review in view of elevated inflation and global factors.

Impact on home buyers and how repo rate impacts home loan rates

The status quo is likely to bring some relief for home loan seekers and those who are already paying EMIs as the payouts will be maintained as it is.

Anuj Puri, chairman, Anarock Group, said, “The unchanged repo rate is a festive bonanza for homebuyers and gives them yet another opportunity to make cost-optimized home purchases. If we consider the present trends, the overall consumer market looks bullish across sectors, particularly the automobile and housing markets, which in many ways reflect the health of the economy. We are entering the festive quarter with a very strong momentum in housing sales, and unchanged interest rates will act as a major catalyst for growth in the residential market.”

Shishir Baijal, chairman and MD, Knight Frank India, added that a pause will be supportive of the real estate sector in maintaining its current momentum. With the last few revisions, the repo rate has gone up by 250 BPS, resulting in 160bps hike in the base lending rate, with the last three revisions being completely passed on to the home buyers.

“This has started to impact housing demand, especially in the affordable segment. The mid segment too has seen growth moderating in the last few quarters. A further increase in the REPO rate could potentially dampen buyers’ sentiment and impact housing affordability,” Baijal added.

Ramani Sastri, Chairman and MD, Sterling Developers, said, “We welcome RBI’s decision to maintain status quo as it helps in holding the interest rates and sustaining the growth momentum in the real estate sector.  However, a reduction in the key rates going forward would be widely celebrated as low interest rates have been a crucial factor in the revival of overall real estate demand and improvement in the liquidity situation which is vital for the sector. Overall, we believe that this momentum is projected to persist not only throughout the remainder of this year but also well into 2024.”

How does the repo rate affect home loan EMIs?

The repo rate is the interest rate at which the central bank (RBI) lends money to commercial banks. It is a key monetary policy tool that the RBI uses to control inflation and economic growth.

When the repo rate increases, banks have to pay more to borrow money from the RBI. This leads to an increase in the cost of funds for banks, which in turn leads to an increase in the interest rates on loans, including home loans.

How does MPC rate change impact home loans?

An MPC rate change can have a significant impact on home loans. If the MPC increases the repo rate, commercial banks will have to pay more to borrow money from the RBI. This will lead to an increase in the cost of funds for banks, which in turn will lead to an increase in the interest rates on loans, including home loans.

What type of home loan will be impacted by MPC repo rate change?

All floating-rate home loans will be impacted by an MPC rate change. Floating-rate home loans are linked to the repo rate, so any change in the repo rate will be reflected in the interest rate on the loan.

Fixed-rate home loans, on the other hand, are not impacted by MPC rate changes. This is because the interest rate on a fixed-rate home loan is locked in for a certain period of time, typically 1-5 years.

What can borrowers do to deal with an increase in MPC rate and home loan interest rates?

When there is an increase in the repo rate and subsequently in home loan interest rates, borrowers may face higher monthly payments and increased overall borrowing costs.

The appropriate strategy may vary depending on individual circumstances, and it’s essential to carefully assess the options available and their potential impact on your overall financial situation.

If you are struggling to manage your loan, you may want to seek professional advice from a financial advisor.