 "home loan")
The Reserve Bank of India on Friday decided to keep the key repo rate unchanged at 6.5 per cent in its first monetary policy review of financial year 2024-25. This marks the seventh consecutive time the rate has been held steady, aligning with market anticipations. The central bank's monetary policy committee (MPC) decided to continue its policy of 'withdrawal of accommodation'.
RBI governor Shaktikanta Das noted a steady decline in core inflation over the past nine months. "The fuel component of the Consumer Price Index (CPI) has remained in deflation for six months." He added that "robust growth prospects provide the policy space to remain focused on inflation."
Speaking on the importance of a deflationary approach in monetary policy, he said, "Monetary policy must continue to be deflationary," and affirmed the Monetary Policy Committee's (MPC) dedication to "aligning inflation with its target." Das elaborated on the central bank's approach, explaining that it "reflects careful consideration of robust economic indicators, taking into account factors such as monsoon performance, US Federal Reserve decisions, and overall economic growth, ensuring continued high growth prospects for the country."
Adhil Shetty, CEO of Bankbazaar.com, provided insights on the potential future adjustments, saying, "The expectation now is for rates to potentially adjust towards the end of this year, when inflation moderates, and the food inflation remains within expected parameters."
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How will the RBI's stance impact borrowers?
RBI Policy: Impact on home loans
"A steady repo rate indicates a consistent outlook for interest rates for borrowers, offering reassurance to homebuyers about stable loan interest rates. This is advantageous for both new loans and existing ones with floating rates," Shetty said. He further added that such stability not only makes housing more affordable for potential buyers but also boosts consumer confidence, thereby supporting demand within the real estate sector.
According to Anuj Puri, Chairman, ANAROCK Group, the decision to maintain status quo will keep the ongoing residential real estate sales momentum on course and unimpeded. Aspiring homebuyers eyeing a purchase will proceed with confidence.
"Housing sales across the top seven cities have been phenomenal in the last few quarters, even though prices are rising steadily. We saw total housing sales of over 130,000 units across the top seven cities in Q1 2024 - the highest quarterly sales in the last decade. Average residential prices across these cities have seen a significant jump in the last one year – ranging between 10-32 per cent in Q1 2024 when compared to Q1 2023. Thus, the breather which RBI's unchanged repo rate will provide to home loan borrowers is apt and welcome," he said.
What should borrowers do now?
Shetty advises borrowers with high-interest loans or those anticipating future rate reductions to consider refinancing. "Refinancing involves transferring your current loan to a different lender offering lower interest rates or more favourable terms," he suggests. He also stresses the importance of timely EMI repayments to maintain a strong credit score and avoid penalties or late fees, which aids in efficient debt management.
He recommends using this period of stable rates to bolster savings or emergency funds, offering protection against unforeseen expenses or financial uncertainties. Additionally, making partial or complete loan prepayments could reduce the total interest cost over the loan's life and potentially shorten the repayment period.
