RBI Monetary Policy August 2024: The RBI Monetary Policy Committee (MPC) maintained the repo rate at 6.50% on August 8, 2024. As a result, there will be no immediate impact on real estate or home loan EMIs. With the repo rate remaining unchanged, banks are unlikely to adjust their lending rates soon, meaning your EMI will stay the same.
RBI decided to continue with the withdrawal of the accommodative monetary policy stance.
RBI MPC Meeting LIVE Updates
Will Home Loan Interest Rates Increase or Decrease?
Atul Monga, Co-Founder and CEO, Basic Home Loan, said that the RBI’s decision to keep the repo rate unchanged carries significant implications for the home loan market.
“Following the budget, the MPC announcement has provided much-needed stability, offering relief to homeowners. The steady rates reflect a positive sentiment in the real estate and lending sectors, presenting an opportunity for lenders to boost their credit outflow to homebuyers,” Monga said.
Monga added that although the repo rate has remained constant for some time, the possibility of a rate change by the central bank in the next 6-12 months cannot be ruled out.
“An increase in the rate could further stimulate the affordable housing segment, supporting the government’s Pradhan Mantri Awas Yojana (PMAY) goals.”
Adhil Shetty, CEO of Bankbazaar.com, said, “The unchanged repo rate and potential rate cuts in upcoming MPC meetings are positive signs for home loan borrowers, making it an opportune time for them to make home-buying decisions and for existing borrowers to repay their loans and reduce their burden.”
“Fixed deposit rates are likely to increase, as some banks have already announced hikes recently. Borrowers with loans linked to the repo rate, including home loans, personal loans, and business loans, will experience stability in their interest rates,” Shetty added.
Beneficial For Borrowers
Manju Yagnik, vice chairperson of Nahar Group and senior vice president of NAREDCO Maharashtra, said that the RBI’s decision to maintain a status quo on the repo rate for the ninth consecutive policy review is a testament to the stability and caution in India’s economic environment.
“This consistent approach is beneficial for homebuyers and house loan borrowers, as it keeps EMIs modest and borrowing costs predictable,” Yagnik added.
The real estate sector will benefit from this stability, leading to increased sales and investments, and ultimately promoting economic growth. The RBI’s commitment to balancing growth and inflation is commendable, and I believe this approach will boost market sentiment and stimulate long-term investment in the housing market, Yagnik said.
The decision of the RBI Governor Shaktikanta Das-headed six-member Monetary Policy Committee (MPC) was announced on Thursday.
The repo rate set by the Reserve Bank of India (RBI) plays a significant role in determining home loan interest rates in India.
Interest rate fluctuations significantly impact real estate demand. Lower interest rates typically increase demand by making borrowing more affordable, which can drive up property prices. Conversely, higher interest rates tend to reduce demand, leading to softer property prices.
Here’s how a change in repo rate impacts home loans:
Impact on Interest Rates:
Repo Rate Cut: When the RBI reduces the repo rate, borrowing money from the central bank becomes cheaper for commercial banks. This often leads banks to reduce the interest rates they charge on loans, including home loans. This can make homeownership more affordable for borrowers, as lower interest rates translate to lower EMIs (Equal Monthly Instalments).
Repo Rate Hike: Conversely, if the RBI increases the repo rate, borrowing costs for banks rise. To maintain profitability, banks typically raise their lending rates, including those on home loans. This can result in increased EMIs for existing borrowers with floating-rate loans and higher interest rates for new home loan applicants.
Impact on Existing Borrowers:
Floating Rate Loans: The impact of repo rate changes is felt immediately for borrowers with floating-rate home loans, which are the most common type in India. Their interest rates are directly linked to the repo rate, so a change in the repo rate reflects in their EMIs.
Fixed Rate Loans: Borrowers with fixed-rate home loans are not immediately affected by repo rate changes. Their interest rate is locked in for a specific period (usually 1-5 years). However, once the fixed-rate term expires, their interest rate will be reset based on the prevailing repo rate at that time.
RBI and Inflation
One of the primary goals of the RBI’s monetary policy is to control inflation and keep it within a target range. Currently, inflation, particularly food inflation, remains above the RBI’s target of 4%. Lowering the repo rate could potentially add to inflationary pressures in the economy.
While a rate cut might stimulate economic growth, the RBI is prioritising controlling inflation at this point. They believe that maintaining the current rate helps manage inflation while still allowing for some economic growth.
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