scorecardresearchRBI Policy: Home loan borrowers heave a sigh of relief as Governor presses

RBI Policy: Home loan borrowers heave a sigh of relief as Governor presses pause button on rate hike

Updated: 06 Apr 2023, 11:58 AM IST

After raising the repo rate for six consecutive times, banking regulator paused the rate hike trajectory, at least for the time being. This effectively means home loan EMIs would not increase in the immediate future.

Repo rate remains unchanged at 6.5 percent.

Repo rate remains unchanged at 6.5 percent.

As the Reserve Bank of India’s (RBI) monetary policy committee on Wednesday pressed a pause button on the repo rate hike — after raising them in the past six monetary policies in quick succession — the home loan borrowers now have a reason to heave a sigh of relief.

In the past one year, RBI raised repo rate by a total of 250 basis points starting May 2022.

The last rate hike took place on Feb 8 when RBI raised its key rate by 25 basis points to 6.5 percent. It was the sixth consecutive repo rate hike in 2022-23 to keep inflation in check.

As a result of these rate hikes, the home loan interest rates rose from the lowest rate of 6.7 percent to 8.75 - 9 percent per annum.

It is worth mentioning that commercial lenders tend to offer the lowest home loan interest rate to borrowers who have a credit score of over 700, and are borrowing lower than 30 lakh.

In case a borrower who raised home loan of 40 lakh at the rate of 6.7 percent in April 2022 is now made to pay EMIs at an interest rate of 8.75 percent, shows this article.

And in case the borrower did not opt for extending the loan tenure must be paying a higher EMI of 39,978 in March 2023 instead of 35,286 in April 2022.

“In the past year, rate hikes have led to a nearly 30 percent increase in EMIs for home loans, but banks typically increase the number of instalments rather than the EMI amount for existing loans to avoid a significant increase in outgo,” says Neelabh Sanyal, Co-founder and COO,

Rates peaked

Although home loan EMIs have risen substantially in the past year as a result of repo rate hikes, most banks tend to raise the number of EMIs to minimise the impact on the quantum of EMIs.

“The current pause in rate hikes indicates that the rate cycle may have peaked and is possibly turning,” adds Sanyal.

Experts assert that the latest monetary policy announcement will come as a relief for the Indian middle class because home loan rates are likely to remain unchanged,

“RBI has maintained repo rate at 6.5% with no change in this MPC outcome but has withdrawn the stance of accommodation. While they have kept the rate unchanged they have maintained that they are ready to act whenever required to combat inflation. This comes as relief for the Indian middle class as home loan rates are expected to remain unchanged post this announcement,” says Akshar Shah, Founder, ‘Fixed’, an investment technology platform.

He also says that investors can make most of the elevated FD rates that banks and corporates offer that is now between 7- 9 percent and lock in attractive returns for medium to long term.


Why does the RBI change repo rate?
First Published: 06 Apr 2023, 11:58 AM IST