The Reserve Bank of India (RBI) has opted to maintain the key repo rate at its current level of 6.5 percent in its latest monetary policy decision, refraining from any alterations. This move comes as a source of relief for both existing and prospective home loan borrowers, as it translates to no immediate adjustments to their equated monthly installment (EMI) payments for home loans.
Traditionally, the costs associated with housing loans, including the monthly interest payments on home loans, tend to rise when the RBI chooses to raise the repo rate. This is due to the ripple effect it has on the rates at which commercial banks can secure funds from the central bank. Nevertheless, it is worth noting that the RBI has maintained a consistent repo rate over its last four monetary policy reviews, resulting in a period of stability with no upward revisions in interest rates for home loans by lending institutions.
Despite the repo rate staying constant, it is important to acknowledge that EMIs for home loans have remained relatively high for individual borrowers. This is attributed to the fact that since May 2022, the RBI has undertaken six repo rate hikes, prompting commercial banks and non-banking financial companies (NBFCs) to increase interest rates across various types of loans, particularly in the realm of housing loans.
The repo rate, which had stood at 4 percent until April 2022, currently resides at 6.5 percent. With each successive hike in the repo rate, financial institutions have been compelled to pass on these increases to their borrowers. Consequently, individuals with floating interest rates on their home loans have witnessed multiple upward adjustments in their monthly EMIs.
In contrast, stakeholders within the real estate sector have expressed their approval of the RBI's decision to maintain the existing policy rates. They have underscored the positive impact it is anticipated to have on housing demand, particularly during the forthcoming festive season.
Ramani Sastri, Chairman and Managing Director of Sterling Developers, remarked, "The long-term advantages of home ownership have led to sustainable growth in this segment. Therefore, we welcome the continuation of the current policy rates throughout 2023, while undoubtedly, a future reduction in interest rates would be preferable to boost overall market confidence and make it more enticing for prospective home buyers."
Lincoln Bennet Rodrigues, Chairman & Founder of The Bennet and Bernard Company, echoed this sentiment by welcoming the RBI's decision to maintain the rates at their current levels. He emphasized, however, that a reduction in key rates in the future would be cause for widespread celebration. Lower interest rates have played a pivotal role in rejuvenating real estate demand and enhancing liquidity within the sector, he added.