The Reserve Bank of India (RBI) in its first Monetary Policy Committee (MPC) Meeting since the beginning of the Iran war, that has largely impacted the global
economy, and the first for this financial year, has 'unanimously' decided to keep the repo rate unchanged at 5.25%. While announcing the key policy decision, RBI Governor Sanjay Malhotra said, "The global economy has been hit due to the ongoing Middle East crisis and has led to energy crisis globally." However, he extended hopes of easing after then recent announcement of ceasefire. Governor Malhotra has also mentioned that the ongoing crisis in West Asia is going to impact the Indian economy saying, "Disruptions in the Strait of Hormuz is likely to impact growth this year. This year, the government has, however, been proactive in ensuring supply of inputs across critical sectors to minimize the impact of supply chain disruptions. "As per the new GDP series comes into play, the real GDP growth for last year is estimated at 7.6%", he said. In terms of quarterly GDP growth projection, Governor said the growth for Q1 is projected at 6.8%, Q2 at 6.7%, Q3 at 7% and Q4 at 7.2%. On the inflation, RBI Governor projected the inflation for Q1 at 4%, Q2 at 4.4%, Q3 at 5.2% and then going down in Q4 at 4.7%. "Elevated crude oil prices could increase imported inflation and widen the current account deficit. The weaker global growth prospect may dampen external demand and reduce remittance flows," he said. Earlier in the day, the Indian Stock Market reacted sharply to the US Iran Ceasefire as the benchmark Nifty opened above 23,800, gaining nearly 800 points or 3.45% while the Sensex gained over 2500 points to at 77,144. US President Donald Trump had said he will suspend planned military action against Iran for two weeks following discussions with Pakistani leaders, hours before his deadline given to Tehran ended. In a statement, Trump said the decision came after conversations with Shehbaz Sharif and Asim Munir, who had urged him to delay an attack. Following the announcement, Iran's foreign minister, Abbas Araghchi, said in a statement that Tehran had also agreed to Pakistan's proposal for a ceasefire and that attacks against Iran are halted, Iran will also "cease their defensive operation". "For a period of two weeks, safe passage through the Strait of Hormuz will be possible via coordinationg with Iran’s Armed Forces," the statement added.
What it means for home loan?
The home loan is directly related to the changes introduced in the repo rate by the RBI.
A pause in the repo rate means EMIs are unlikely to see any immediate relief. Since most home loans are linked to benchmarks such as the repo rate, an unchanged policy rate means EMIs will to remain steady in the near term.
If RBI hikes repo rate, banks' borrowing costs increases, leading to higher EMIs or extended loan tenures for borrowers. In case of cut in the rate, the banks also tend to reduce the rate making the loans cheaper.
With the RBI holding rates, borrowers may have to continue servicing loans at current interest levels. Banks are also likely to remain cautious in passing on any marginal benefits, given tight liquidity conditions and elevated cost of funds.
