The Reserve Bank of India (RBI) – in its latest Monetary Policy Committee (MPC) meeting on 6 December 2024 — decided to keep the repo rate unchanged at 6.5%. This signifies that the repo rate has been stable for the 11th consecutive occasion since February 2023.
The repo rate is the interest rate at which the RBI lends money to commercial banks. It influences interest rates across the economy, including home loans. A higher repo rate means costlier loans. A lower rate makes borrowing cheaper. When the RBI keeps the repo rate unchanged, it signals stability. Borrowers and lenders can expect consistent interest rates, at least for now.
Adhil Shetty, CEO of Bankbazaar.com, says, “Most home loans in India have floating interest rates. With no change in the repo rate, your EMIs are unlikely to rise for now. That’s welcome news for borrowers managing tight budgets. Banks are likely to keep lending rates stable. If you’re planning to buy a home or refinance your loan, this could be a good time to negotiate a better rate.”
“This is also a good time to take a moment to review your loan terms. If your interest rate is higher than the current market rate, consider refinancing. If you have extra funds, use them to prepay your loan. This helps lower your principal and reduces the total interest you’ll pay,” he adds.
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Impact on Home Loan Borrowers
For home loan borrowers, the unchanged rate is good news. Many loans, especially those on floating rates, are tied to the repo rate. Here’s how this affects you:
- No Immediate Rate Hike
Borrowers won’t face a sudden increase in their Equated Monthly Instalments (EMIs). This provides financial breathing space. - Existing Floating Rate Loans
If you have a floating rate loan, your EMI will stay the same for now. But keep in mind, banks review rates periodically. A stable repo rate reduces the chances of an upward revision. - Fixed Rate Loans
Those with fixed-rate home loans are unaffected by repo rate changes. Your EMI remains constant throughout the loan term. - New Loan Seekers
For new borrowers, interest rates offered by banks may remain stable. This could be a good time to apply for a home loan if your finances are in order.
What Should Borrowers Do Now?
Review Your Loan: Check your current interest rate. If you are paying a higher rate, consider transferring your loan to another lender with better terms.
Prepay if Possible: If you have surplus funds, consider prepaying a part of your loan. This reduces your principal amount and interest burden.
Negotiate with Your Bank: Approach your bank and request a lower interest rate. Banks often offer better rates to retain loyal customers.
Keep an Eye on Inflation: The RBI’s decision is largely influenced by inflation trends. If inflation rises sharply, a rate hike might follow in the future. Stay prepared for such changes.
Focus on Long-Term Planning: Use the stable rate environment to improve your financial planning. Set aside funds for emergencies and aim to reduce debt.
Shetty explains, “The unchanged repo rate reflects the central bank’s cautious approach. It gives the economy time to consolidate while keeping inflation under control. The RBI cutting the CRR by 50 bps for the first time since April 2020 signals the direction of monetary policy. And while key policy rates are unchanged for the 11th straight time, the stars are aligning for a potential rate cut in February. We still need to look at the global trends as inflation remains volatile. The RBI has done a fine job of balancing inflation controls with economic growth.”
The RBI decision to keep the repo rate at 6.5% is a boon for home loan borrowers. It offers stability and predictability in EMIs. But this is also a chance to plan ahead.