February 8, 2024: The Reserve Bank of India (RBI) on February 8, 2024, decided to leave the repo rate unchanged at 6.5%. The RBI move to maintain a status quo for the key policy rate for the 6th time in a row means there will be no increase in home loan tenure or EMIs as far as home loan borrowers are concerned.
For the uninitiated, repo rate is the interest the RBI charges from banks in India for lending them short-term funds. Home loans in the country are ties with the movement of the repo rate. This means, each time there is any increase of cut in the repo rate, it reflects on the EMIs paid by the borrower.
After increasing the key benchmark lending rate by 250 basis points (bps) or 2.5% cumulatively since May 2022, the RBI first decided to hit the pause button in April 2023. The repo was last increased in February 2023, from 6.25% to 6.50%.
According to a report by global brokerage firm Deutsche Bank, the interest rate cycle appears to have peaked and the RBI is unlikely to go for further hikes, unless absolutely necessary. The rate is likely to be cut in June.
“We see the central bank cutting the policy repo rate by 75 bps in 2024 and another 25 bps in early 2025. Earlier, we were expecting a 100 bps repo rate cut in 2024 itself, starting from April 2024, but given that the Fed is likely to start cutting rates from June 2024, we have pushed back the start of the rate cut cycle to June 2024,” it said.
Impact on real estate
According to experts, the move by the RBI would further boost growth through providing stability.
“The stability not only provides continued relief to homebuyers in the form of predictable EMIs but also aids real estate developers in having greater confidence on near-term financing costs. The steadiness in real estate ecosystem augurs well for healthier balance sheets and should provide further momentum to sales in the residential segment. Moreover, the recent focus of the interim budget on infrastructure and urban housing stands to benefit the real estate sector throughout 2024 and beyond. An anticipation of future repo rate cuts and projected GDP growth rate of 7% for fiscal 2024-25 adds credence to conviction of a strong performance by the real estate sector in the next few quarters,” Vimal Nadar, senior director, research, Colliers India.
“We do not expect the today’s update to have any material impact on the on-going positive sentiment. However, we hope the interest rates start to drop soon as this will also revive sentiments of affordable homebuyers,” says Anshul Jain, managing director, India & Southeast Asia and head of APAC Tenant Representation, Cushman & Wakefield.
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An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.
In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
sunita.mishra@proptiger.com
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