RBI MPC Maintains Unchanged Repo Rate: What It Means For Homebuyers And Home Loan Borrowers?

On February 8, 2024, during its bimonthly policy rate meeting, the Reserve Bank of India (RBI) opted to maintain the repo rate at 6.5 per cent, the key interest rate used for lending short-term funds to commercial banks. This decision, made in the February 2024 review, was in line with economists' expectations. The RBI has now kept its benchmark interest rate unchanged for the sixth consecutive meeting, affirming its hawkish policy stance and indicating a prolonged period of elevated rates. RBI Governor Shaktikanta Das projected that inflation would average 4.5 per cent in the upcoming fiscal year starting in April, while noting the economy's robust performance, with growth anticipated to reach seven per cent during this period.

Experts interpret the decision to maintain the repo rate as an extension of the previous two policy announcements' benefits, particularly for homebuyers. Consequently, homebuyers continue to enjoy the advantage of relatively affordable home loan interest rates.

What It Means For Homebuyers: Anuj Puri, chairman, Anarock Group, a real estate service provider, said in a statement, “If we consider the present trends, the housing market has been unstoppable, and unchanged home loan rates will help maintain the overall positive consumer sentiments. Given that housing prices have risen across the top seven cities in the last year, this breather by the RBI is a distinct advantage to homebuyers.”

According to ANAROCK research, 2023 saw average housing prices rise by anywhere between 10-24 per cent in the top seven cities, with Hyderabad recording the highest 24 per cent jump. The average prices in these markets stood at approximately Rs 7,080 per sq. ft., while in 2022 it was approximately Rs 6,150 per sq. ft. – a collective increase of 15 per cent.

“Going forward, we can expect the momentum in housing sales to continue, significantly aided by the unchanged repo rates which will keep home loan interest rates attractive and also signal ongoing robustness of India’s positive economic outlook,” added Puri.

According to experts, The FM’s Budget 2024 speech shed light on the reasons behind economic growth, including the robust demand in the real estate sector, particularly in the high-end and luxury segments. The government's focus on affordable housing, with the announcement of a special scheme for those living on rent, is anticipated to contribute to the overall growth of the real estate sector.

Amit Goyal, Managing Director, India Sotheby’s International Realty, said in a statement, “The proposed scheme will contribute to more housing developments in the country, boosting the real estate landscape to newer heights. Moreover, with new financing and entrepreneur-friendly policies, India will witness more people becoming high-net-worth individuals, hence more likely to invest in real estate.”

Badal Yagnik Chief Executive Officer (CEO), Colliers India, a real estate services and investment management company, said in a statement, “The government's persistent emphasis on affordable housing unveils a myriad of opportunities for residential developers, as they position themselves to make substantial contributions, aligning with the broader vision of inclusive and accessible living. Amid positive market synergies in the form of stable interest rates, attractive incentives, and increased affordability, domestic investors too are likely to resonate upbeat confidence towards all real estate segments.

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What It Means For Home Loan Borrowers: The RBI announcement on interest rates will come as a relief to homeowners who have been struggling with higher interest rates and longer loan terms. Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE, a commercial real estate and services company, said, “The decision to keep the repo rate unchanged for the sixth consecutive time is anticipated to have minimal influence on the interest rates for home loans, providing relief to both existing and prospective borrowers. The stability in interest rates is poised to motivate potential homebuyers and empower developers to plan and launch new projects with increased confidence. The central bank’s decision to remain focused on the systematic withdrawal of the accommodative stance is likely to rein in inflation further.”

Home loan rates are already lower compared to 2023 levels where they had started touching nine per cent. The lowest home loan rates today are in the 8.30 range, with several lenders grouping around 8.50 for eligible borrowers. This is a good market for new borrowers who can lock in a low spread of under 2.00 over the repo rate. On the other hand, existing borrowers will continue to have it tough for a few more months—hopefully no more than a couple of quarters—after which one hopes that inflation would have cooled enough to warrant a repo rate cut.

“Existing borrowers may be paying a higher-than-market spread, well over 2.00 over the repo rate. Around 2021 and 2022, the lowest rates in the market were around 6.50, when the repo rate was 4.00, implying a spread of 2.50 over the repo rate. Those borrowers have the option of refinancing their loans to a lower spread and lower rate to save interest costs. This is important for borrowers with government banks where a large percentage of loans continue to be on older benchmarks such as marginal cost of funds-based lending rate (MCLR) and base rate where interest rates may be marginally higher compared to the repo-benchmarked loans we have today. Refinancing with one’s bank is simple and low-cost but can potentially save lakhs for borrowers,” Adhil Shetty, CEO, BankBazaar.com, a financial services website, said in a statement.

According to experts, by holding rates steady, the RBI prioritizes inflation control within its target range. While from the real estate sector perspective, a downward revision in rates would have been the best outcome, the RBI's decision to hold rates implies steady EMIs for borrowers. “We expect continued momentum in sales across various property segments, including affordable, mid-range, and luxury housing throughout various regions for the foreseeable future. A downward revision, which is expected later this year, would further propel the sector,” Mohit Jain, Managing Director (MD), Krisumi Corporation, a collaboration between Japanese conglomerate Sumitomo Corporation and Indian auto components firm Krishna Group, said.

Raj Khosla, founder and MD, MyMoneyMantra.com said, “In a time of steady economic indicators and cautious optimism, the RBI's decision to maintain the repo rate at 6.5 per cent ensures predictability and stability for both borrowers and savers, fostering a conducive environment for financial planning and sustainable growth. For home loan borrowers, the RBI's decision implies stability in their financial planning, as there will be no change in the EMIs for existing loans. Specifically, for a borrower with a home loan of Rs. 50 lakh at an 8.5 per cent interest rate over 20 years, the monthly EMI will continue to be Rs 43,391. This offers a predictable financial environment for borrowers, enabling them to plan their finances without the concern of fluctuating loan costs.”

Amrita Gupta, Director of Manglam Group and Founder President of CREDAI Rajasthan Women's Wing said that this decision is in line with the resilience of the Indian economy amidst global challenges and ensures the sustenance of favorable conditions for homebuyers. “With home loan rates remaining stable, consumer sentiments are expected to remain buoyant, further bolstering the sector's growth trajectory. The respite from any rate hikes offers a conducive environment for sustained development in the real estate segment, allowing buyers to capitalize on the current market dynamics. We look forward to leveraging this favourable environment to continue delivering quality housing solutions and contributing to the nation's economic prosperity,” Gupta said.