Repo rate unchanged: The Reserve Bank of India (RBI) decided to keep the key repo rate unchanged at 6.5% for the 11th time during its monetary policy review on Friday. This is the 11th consecutive decision to maintain the current rate, offering no immediate relief for individuals with home loans. As a result, prospective homebuyers can expect home loan interest rates to remain at the same level for the time being.
“MPC believes that only with durable price stability can we secure a strong foundation for high growth. MPC is committed to restoring inflation-growth balance in the interest of the economy,” RBI Governor Shaktikanta Das said.
The stability of the repo rate indicates that banks are not expected to make any changes to their lending rates. As a result, your equated monthly installments (EMIs) are likely to remain steady for the time being.
The repo rate, determined by the Reserve Bank of India (RBI), plays a significant role in determining the interest rates for home loans nationwide.
This decision comes in the wake of India's real GDP growth declining to a seven-quarter low of 5.4% in the July-September 2024 quarter, raising concerns among economists. The RBI continues to prioritize the reduction of retail inflation to 4%.
Impact of unchanged repo rate
From October 2019 onwards, banks have tied floating-rate retail loans like home loans to an external benchmark, typically the repo rate. This means that any changes in the repo rate directly affect the interest rates on these loans. Borrowers stand to gain from rate cuts, but bear the brunt of increased interest costs when the repo rate is raised.
"With India's GDP forecasted to grow between 6.5% and 7% in FY 2024-25, and the real estate sector contributing 7% to the economy, maintaining stability is crucial to sustaining economic momentum," said Manju Yagnik, vice chairperson of Nahar Group and senior vice president of NAREDCO Maharashtra.
For individuals looking to purchase a home, stable interest rates mean that their monthly mortgage payments will remain constant for the foreseeable future.
"A stable rate ensures predictable repayment terms, which boosts buyer confidence and encourages investment in the sector. With rising property prices, steady lending conditions play a pivotal role in driving real estate growth, contributing substantially to India's economy," added Yagnik.
Shishir Baijal, Chairman and Managing Director, Knight Frank India, said: "A rate cut would be a welcome move for consumers, especially home buyers, as borrowing costs remain elevated despite the unchanged repo rate. Growth in home loans has slowed, and consumption among lower-income groups has dropped significantly, as seen in the sharp decline in affordable housing sales."
He added the RBI is trying to balance several challenges like a depreciating rupee, softening bond yields, persistent inflation, and a slowdown in growth.
"While the growth slowdown isn’t alarming yet, it gives the RBI enough room to keep rates steady as it focuses on controlling inflation and stabilising the currency. The RBI's shift toward a neutral stance hints at a gradual pivot from inflation control to supporting growth.
Dhruv Agarwala, Group CEO, Housing.com & Proptiger.com said: "The RBI’s decision to keep the repo rate unchanged reflects its concerns over inflation, despite lower-than-expected growth in the September quarter. With housing affordability under pressure due to rising property prices, a rate cut could have boosted the real estate sector, particularly amidst slowing urban demand and moderation in wage growth. However, housing demand remains strong, especially in the high-end and luxury segments, with most new launches in the December quarter targeting these categories. Targeted measures, like adjustments to the Cash Reserve Ratio (CRR), can inject liquidity to sustain this momentum."
Kanika Singh Chief Risk Officer– IMGC: “The RBI kept the repo rate unchanged due to inflationary pressures. High-frequency indicators show early signs of recovery in the second half of the fiscal year, but inflation risks remain elevated. Affordability has become challenging as loans remain expensive and property prices have steadily increased. Residential real estate sales have moderated, with high-end, mid-end, and affordable segments largely flat over the last quarter. Factors such as high capital values, inflation pressures, and uncertainty around the RBI's repo rate cut may lead some homebuyers, especially in metros, to adopt a wait-and-watch approach. Meanwhile, Tier 2 and 3 cities continue to drive growth in housing loans.”
Karan Shetty, Co-founder, Claravest Technologies, said: "The RBI’s move to keep the repo rate steady at 6.5% brings much-needed stability to the real estate market. This consistency is particularly beneficial for homebuyers, as it ensures predictable EMIs. Additionally, the reduction of the Cash Reserve Ratio (CRR) to 4% enhances the lending potential of banks. This development is likely to provide greater access to funds for developers, aiding in faster project completions and minimizing delays in property deliveries."
Sharad Mittal Founder & CEO, Arnya Realestates Fund Advisors, explained: "RBI’s decision to keep the policy repo rate unchanged, while maintaining a neutral stance, reflects the ongoing challenges posed by high inflation. For India’s real estate market, these developments suggest a mixed outcome. On the one hand, lower GDP growth may indicate weaker overall demand, but on the other, stability in interest rates coupled with improved liquidity could continue to drive demand in the mid- and luxury housing segments, which have been rising due to growing middle-class aspirations and increasing housing requirements. Furthermore, should the RBI decide to cut rates in the future, it could further spur residential real estate demand, making homeownership more affordable and attractive for buyers."
On the positive side, as banks may keep lending rates stable for now, one can think of refinancing their loans.
"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 the 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," Adhil Shetty, CEO, BankBazaar.com.
Please find below a comprehensive overview of the interest rates for home loans ranging from above Rs 30 lakh to Rs 75 lakh, sourced from Paisabazaar.com. Public Sector Banks 1. State Bank of India: 8.50% - 9.85% 2. Bank of Baroda: 8.40% - 10.65% 3. Union Bank of India: 8.35% - 10.90% 4. Punjab National Bank: 8.40% - 10.15% 5. Bank of India: 8.35% - 10.85% 6. Canara Bank: 8.45% - 11.25% Private Sector Banks 1. Kotak Mahindra Bank: 8.75% onwards 2. ICICI Bank: 8.75% onwards 3. Axis Bank: 8.75% - 13.30% 4. HSBC Bank: 8.50% onwards 5. South Indian Bank: 8.70% - 11.70% 6. Karur Vysya Bank: 9% - 11.05% Housing Finance Companies (HFCs) 1. LIC Housing Finance: 8.50% - 10.55% 2. Bajaj Housing Finance: 8.50% onwards 3. Tata Capital: 8.75% onwards 4. PNB Housing Finance: 8.50% - 14.50% 5. GIC Housing Finance: 8.80% onwards 6. Aditya Birla Capital: 8.60% onwards 7. ICICI Home Finance: 9.30% onwards