Repo Rate Unchanged
In its latest monetary policy announcement, the Reserve Bank of India (RBI) opted to retain the benchmark repo rate at 5.25 percent. This marks a continuation
of the central bank's current monetary stance, which aims to balance economic growth with inflation management. Following a series of rate cuts totaling 125 basis points throughout the previous year, this hold signifies a period of consolidation. It's important to note that this decision was the final monetary policy review for the current fiscal year, underscoring its significance in setting the tone for the upcoming financial period. Previously, the repo rate remained static at 4 percent for an extended duration, from May 2020 to April 2022, before a period of gradual increases to 6.5 percent, a rate that was held for two years until the recent adjustments.
Borrower Impact Analysis
For individuals with existing loans, the RBI's decision to keep the repo rate at 5.25 percent means that their current Equated Monthly Installments (EMIs) will remain unchanged. This stability, while offering predictability, does not translate into immediate savings for borrowers. Similarly, prospective borrowers will find that interest rates on new loans are likely to stay consistent for the time being. Banks, both public and private, are expected to maintain their prevailing interest rates for home, auto, and personal loans, barring any independent adjustments to their profit margins. For example, a Rs 50 lakh home loan taken over 30 years at an 8.20% interest rate will continue to have an EMI of Rs 37,346, resulting in no monthly or annual savings. The same holds true for personal loans; a Rs 5 lakh loan over 5 years at 12% interest will maintain its Rs 11,122 EMI, offering no immediate financial relief.
Expert Perspective
Industry experts view the RBI's decision to maintain the status quo on the repo rate as a strategic move to closely observe inflation trends, manage liquidity, and assess the full transmission of previous rate cuts before considering any further policy adjustments. Adhil Shetty, CEO of BankBazaar, highlighted that the cumulative easing already implemented has largely benefited retail lending, making home loans more accessible compared to recent years. Even with rates stable, affordability remains favorable due to steady lender margins, competitive market offerings, and seasonal discounts. Shetty advises borrowers to consider increasing their EMI payments to shorten loan tenures and reduce overall interest paid. Additionally, exploring options like balance transfers and loan restructuring can offer further financial efficiencies. The current environment, characterized by stable rates, consistent housing demand, and improved project execution, is conducive for long-term homebuyers prioritizing financial certainty over short-term rate fluctuations.
