RBI keeps repo rate unchanged: Experts expect stability in housing sector in coming quarters

The Reserve Bank of India (RBI) on Thursday maintained a status quo on the key repo rate and kept it at 6.5 per cent. This has come as a slight breather for the home loan subscribers as a repo rate pause can lead to downward rate revision in the near future. 

 “The cumulative rate hike of 250 basis points undertaken by the MPC is transmitting through the economy and its fuller impact should keep inflationary pressures contained in the coming months. Monetary policy would need to be carefully calibrated for alignment of inflation with the target. Against this backdrop, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent," RBI governor Shaktikanta Das said in a statement. 

Along with the repo rate, MPC has decided to keep Standing Deposit Facility Rate at 6.25 per cent, Marginal Standing Facility Rate and Bank Rate unchanged at 6.75 per cent.

Experts feel that the repo rate pause clearly means the RBI is trying to maintain a status quo until the economy improves substantially. This is good news for home loan borrowers as it signals that interest rates appear to be stabilising. 
In the previous policy (April 2023), RBI kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50 per cent. Subsequently, it also kept the standing deposit facility (SDF) rate unchanged at 6.25 per cent, while the marginal standing facility (MSF) rate and the Bank Rate were also unchanged at 6.75 per cent.

Since May last year, the RBI had tweaked the repo rate upwards by 250 bps over inflation concerns, which prompted the banks giving out loans to revise their rates. Changes in the repo rate affect various financial instruments, including home loans.  
The back-to-back interest rate hikes had come as a major challenge for the existing homeowners who either were opting to refinance their loans or partially repay it to bring down the financial burden. Those who were paying a home loan interest rate of 6.75 per cent in April 2022, are now paying around 9.25 per cent as per the external benchmark lending rate (EBLR) norms. 

"The worst seems to be over. Interest rates are stabilising. Inflation permitting, we may see rates drop before the end of 2023. If you’re on a repo-linked loan, your rate should automatically reset after any repo rate change within a quarter,” said Adhil Shetty, CEO, Bankbazaar.com. 

“The decision to keep the repo rate unchanged is a positive development for home buyers and investors, as it provides them with some stability and reduces uncertainty and volatility associated with interest rate fluctuations.  India’s housing sector is witnessing a strong rebound in the recent past driven by various factors such as affordability, lifestyle upgradation and aspiration of customers to own homes and we see this up-cycle continuing in 2023 fuelled by both end-user and investor interest,” said Ramani Sastri, Chairman and MD, Sterling Developers. 

“In the residential real estate segment, buyers’ sentiments have continued to be robust and this has resulted in home sales showing an appreciable rate of growth. Hence, we welcome this move by RBI as it helps in holding the interest rates and sustaining the growth momentum in the real estate sector. While the rising interest rates in the recent past have certainly impacted the sales of rate-sensitive segments of affordable and mid segment housing, but it did not have any impact on the luxury housing,” said Lincoln Bennet Rodrigues, Chairman and Founder, The Bennet and Bernard Company. 

Looking ahead 

For home loan borrowers, experts feel they can stick to their floating interest rate loans as of now. Even refinancing your loan is a welcome move.  

“In line with industry expectations, the RBI has maintained a status quo on its benchmark lending rate. With this, the repo rate will be maintained at 6.5 per cent. This augurs particularly well for the real estate sector in the country. Amid all growth indicators moving in the right direction, the consumer spirit would get a renewed boost from the RBI move, which means home loan interest rates would remain at the current level,” said Dhruv Agarwala, Group CEO, Housing.com, PropTiger.com & Makaan.com.

Shetty of Bankbazaar.com said: “The lowest rates being offered in the home loan market today are in the 8.40 to 8.50 per cent for eligible borrowers. If you’re paying a significantly higher rate, consider a refinance. If you’re able to shave off 50 basis points or more off your rate, it could lead to significant savings over the long term. When you think about your home loan rate, also think of it in terms of the premium you pay over the repo. For example, at 8.50 per cent, the premium over the repo is 2 per cent. Prime borrowers with good credit histories and strong income credentials can borrow at the lowest premium while others will have to pay higher."  

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