RBI Holds Repo Rate Steady for 10th Time; Home Loan Rates Likely Unchanged

For the tenth consecutive time, the Reserve Bank of India (RBI) has kept the repo rate steady at 6.50%, as decided by a 5:1 vote in the latest Monetary Policy Committee (MPC) meeting on October 9, 2024. However, for the first time in two years, all six members agreed to shift the policy stance to neutral.

The Monetary Policy Committee's three-day meeting, held from October 7-9, 2024, kept the repo rate unchanged at 6.50%, with five out of six members voting for stability. While this marks the tenth straight time the Reserve Bank of India (RBI) has maintained the rate, the shift to a neutral stance hints at a possible rate cut in the upcoming December policy.

How Does the Current Repo Rate Affect Homebuyers?

Last fiscal year, rising raw material costs led to higher housing prices. With the repo rate increasing, home loan interest rates also climbed, making it harder for potential buyers to invest in real estate. However, the RBI’s current neutral stance offers some relief and is expected to keep lending rates stable for now. This may encourage homebuyers who had postponed their plans to start looking for favorable deals, helping the real estate sector remain steady despite inflation pressures. The RBI's decision to keep the repo rate at 6.50% is well-received by homebuyers and developers. Experts suggest that State governments could further boost demand by offering rebates, like lowering stamp duty and registration charges. This combined effort could significantly drive growth in the housing market.

Understanding MCLR and Its Effect on Your Home Loan EMI

MCLR, or Marginal Cost of Fund-based Lending Rate, is the minimum interest rate a bank can charge on loans, established by the RBI in 2016 to ensure consistent pricing for customers. Changes in MCLR directly affect Equated Monthly Installments (EMIs) for various loans, including home, auto, and personal loans. If MCLR rises, these loans may become more expensive. Additionally, when the RBI raises the repo rate, banks typically increase their lending rates accordingly.

2023 MCLR Increases Announced by Banks

The State Bank of India (SBI) raised its MCLR by five basis points, effective July 15, 2023. This increase affects all tenures and may result in higher EMIs for borrowers with loans linked to MCLR. However, those with loans based on other benchmarks will not see any changes in their EMIs. As a result, the one-year MCLR now stands at 8.55%, up from 8.50%.

As of April 15, 2023, the Bank of Maharashtra (BOM) has raised its MCLR by 10 basis points across all tenors. The new rates are 7.9% for overnight loans, 8.1% for one-month loans, and 8.4% for six-month loans. Additionally, the one-year MCLR has been adjusted to 8.5%.

The Indian Bank increased its MCLR by 20-25 basis points across all tenors, effective January 3, 2023. Following the RBI's repo rate revision, PNB raised its RLLR by 25 basis points, moving from 8.75% to 9% as of February 9, 2023. Similarly, Bank of Baroda (BOB) hiked its MCLR by five basis points across all tenors, effective February 12, 2023. In a surprising decision, Canara Bank reduced its RLLR by 15 basis points, bringing it down to 9.25% on the same date. Additionally, SBI increased its MCLR by 10 basis points across all tenors, effective immediately.

In summary, the RBI's Monetary Policy Committee reviews repo rate changes, and an increase typically signals higher home loan interest rates. Conversely, the RBI's decision to maintain the current repo rate suggests that interest rates in the home loan sector will remain stable.