RBI August 2024 MPC: Home Loan EMIs Steady As Apex Bank Holds Repo Rate
RBI August 2024 MPC: Following the Union Budget, the MPC's announcement has provided much-needed stability, offering relief to homeowners
RBI August 2024 MPC: The Reserve Bank of India (RBI) has maintained the repo rate at 6.5 per cent, marking the ninth consecutive time it has kept the rate unchanged, according to the Monetary Policy Committee (MPC) review on August 8. This decision ensures that home loan interest rates and equated monthly instalments (EMIs) remain steady for borrowers.
Following the Union Budget, the MPC's 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.
Adhil Shetty, CEO of Bankbazaar.com, commented that the unchanged repo rate and potential rate cuts in upcoming MPC meetings are positive signs for home loan borrowers. "This makes it an opportune time for them to make home-buying decisions and for existing borrowers to repay their loans and reduce their burden," Shetty said.
Shetty highlighted the significance of refinancing options for borrowers. "The percentage of MCLR and Base Rate-linked loans with government banks remains high at 58 per cent as per the latest data. Borrowers must consider refinancing to an EBLR loan where rates should be marginally lower and rate cuts will be passed on to them automatically. With the repo rate unchanged, borrowers with EBLR loans, including home loans, personal loans, and business loans, will experience stability in their interest rates. This is even as MCLRs are seen going up," he explained.
Since October 1, 2019, banks have linked floating-rate retail loans to an external benchmark, typically the repo rate. Hence, any change in the repo rate directly influences the interest rates on those loans.
Several economists expect the MPC to change its stance to Neutral in October and possibly start the rate-cutting cycle from December if food inflation moderates to a level within RBI's comfort zone. Existing borrowers will have to contend with higher interest rates for a few more months.
Inflation dipped to a 12-month low of 4.75 per cent in July 2024, although food inflation is still high at 8.7 per cent.
During 2021 and 2022, the lowest rates in the market were around 6.5 per cent when the repo rate was 4 per cent, implying a spread of 2.5 per cent. Currently, the benchmark lending rates are hovering above 8 per cent.
This year, HDFC Bank has effectively increased home loan rates for new borrowers by 40 basis points (bps) despite steady repo rates. At HDFC Bank, the lowest interest rate on a Rs 50-lakh home loan was 8.35 per cent in January, whereas the current lowest rate is 8.75 per cent. One basis point is one-hundredth of a percentage point.
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