RBI MPC meeting December 2024: The Reserve Bank of India's Monetary Policy Committee (MPC) commenced its bi-monthly review of the economy on December 4, with the review scheduled to conclude on Friday, December 6. The prevailing sentiment among most experts is that the central bank is likely to maintain interest rates at their current levels on Friday, with market participants closely monitoring any potential liquidity enhancement measures following a recent downturn in economic growth.
The RBI has maintained the repo rate at 6.5% since February 2023, with experts suggesting that a potential easing might only be considered in February.
RBI Governor Shaktikanta Das has shown reluctance towards an immediate rate cut, despite the RBI's adoption of a neutral stance during the October meeting, citing persistently high inflation figures above the central bank's 4% target. However, concerns have been raised over the significant decline in economic growth to 5.4% during the July-September period, prompting fears that the RBI's stringent policies may be impeding economic activity.
Both Finance Minister Nirmala Sitharaman and Commerce Minister Piyush Goyal have been advocating for reduced borrowing costs in recent months, as some economists are pushing the RBI to take further steps to encourage lending and boost economic growth.
In line with this, brokerage firm Nomura has suggested the possibility of the Reserve Bank of India's Monetary Policy Committee (MPC) announcing a rate cut on December 6, 2024. According to Nomura, the RBI might opt for a significant one percentage point reduction in interest rates due to the slow GDP growth and a decrease in credit expansion. The firm believes that these conditions warrant immediate policy changes by the RBI.
Repo rate
The Repo rate, set by the RBI, is the interest rate at which commercial banks borrow money from the central bank. A lower repo rate reduces the cost of borrowing for banks, encouraging investment in the country. On the other hand, a higher repo rate increases borrowing costs, leading to lower investment.
In addition to influencing borrowing costs, the RBI uses the repo rate to manage inflation. If the economy is expanding too quickly and prices are rising, the central bank may raise the repo rate to dampen spending. Conversely, during economic slowdowns, the central bank may decrease the repo rate to stimulate spending.
Madan Sabnavis, Chief Economist at Bank of Baroda, noted that the uncertain global conditions and their potential impact on inflation, coupled with inflation averaging around 5.9% in the last two months, make a status quo on the repo rate the most logical decision from a policy standpoint.
What happens to your home loan
The Reserve Bank of India's (RBI) repo rate is a key factor in determining loan rates. Homebuyers seeking to purchase a house with a home loan are eagerly awaiting the RBI's upcoming rate revision. This decision will directly impact interest rates on loans, including home loans, in India.
When the RBI increases the repo rate, banks typically raise their lending rates, resulting in higher interest rates on home loans (both fixed and floating). Conversely, a decrease in the repo rate prompts banks to lower their lending rates, making home loans more affordable. This adjustment benefits individuals with floating interest rates immediately or at the next reset period.
For homeowners or those paying Equated Monthly Installments (EMIs), a stable repo rate means their loan interest rates will remain consistent for the time being.
In such situations, those looking for loans have the option to choose floating-rate loans. Should the RBI decide to decrease the repo rate, loan EMIs could potentially decrease as well. Therefore, it might be advantageous to consider refinancing current home loans to take advantage of potentially lower EMIs.
Moreover, financial analysts believe that the RBI's decision to keep interest rates stable will ensure predictability in loan expenses. This, in turn, is expected to encourage a larger number of individuals looking to purchase a home to make the decision, ultimately boosting demand in the real estate market in the coming years. Affordable monthly installments for both existing and prospective homeowners are a key factor in driving home sales, particularly within the price-sensitive affordable housing segment.