The Reserve Bank of India (RBI) has maintained the repo rate at 6.5 percent for the ninth consecutive time during its Monetary Policy Committee (MPC) review on August 8. As a result, home loan interest rates and equated monthly instalments (EMIs) remain unchanged for borrowers.
“The RBI’s decision to keep the repo rate unchanged carries significant implications for the home loan market,” says Atul Monga, CEO and Co-Founder of Basic Home Loan. He added that following the budget, the Monetary Policy Committee’s (MPC) announcement has provided much-needed stability, offering relief to homeowners. The steady rates reflect positive sentiment in the real estate and lending sectors, presenting an opportunity for lenders to boost their credit outflow to homebuyers.
Since October 1, 2019, banks have tied floating-rate retail loans to an external benchmark, typically the repo rate. Therefore, any change in the repo rate directly impacts the interest rates on these loans.
Several economists anticipate that the MPC will shift its stance to Neutral in October and begin a rate-cutting cycle in December, provided that food inflation moderates to a level within the RBI’s comfort zone. Existing borrowers will need to manage higher interest rates for a few more months.
Inflation dropped to a 12-month low of 4.75 percent in July 2024, yet food inflation remains high at around 8.7 percent.
In 2021 and 2022, the lowest market rates were approximately 6.5 percent when the repo rate was 4 percent, indicating a spread of 2.5 percent. Currently, benchmark lending rates are above 8 percent.