RBI Governor’s pause on rate hikes relieves home loan borrowers from further interest rate hikes

New Delhi: Home loan borrowers now have a reason to breathe a sigh of relief as the Reserve Bank of India's (RBI) monetary policy committee on Wednesday hit a hold button on the repo rate hike after raising them in the last six monetary policies in fast succession.

Since May 2022, the RBI has increased the repo rate by a total of 250 basis points. On February 8 this year, the RBI increased its benchmark rate by 25 basis points to 6.5 percent. It was the sixth straight repo rate increase in 2022–2023 to control inflation.

These rate increases caused the interest rates on house loans to increase from the lowest rate of 6.7 percent to 8.75 to 9 percent annually. It is important to note that commercial lenders frequently give house loan applicants with credit scores over 700 and borrowing amounts under Rs 30 lakhs, the lowest interest rates available.

If a borrower who obtained a home loan for Rs 40 lakhs at an interest rate of 6.7 percent in April 2022 is now required to make equated monthly Instalment (EMI) payments at an interest rate of 8.75 percent.

Although repo rate increases have caused house loan EMIs to increase significantly over the past year, most banks prefer to increase the number of EMIs in order to lessen the impact on the number of EMIs.

Despite the MPC’s decision not to alter the repo rate, the RBI has abandoned its accommodating attitude. They have emphasized that they are prepared to intervene whenever necessary to control inflation even if they have kept the rate steady. The middle class in India will be relieved to hear this because it means that home loan rates will likely stay the same going forward.

Investors can lock in favorable profits for the medium to long term by taking advantage of the increased FD rates that banks and corporations are currently offering, which range from seven to nine percent.