With inflation turning out to be above targets, the RBI’s Monetary Policy Committee, based on an assessment of the macroeconomic situation, voted unanimously on Friday to keep the policy repo rate unchanged at 4 per cent. It is the eleventh consecutive time that the central bank has maintained the status quo, and it has been done it to ensure that inflation remains within the target in the future while supporting growth.
The Russia-Ukraine conflict and heightened geopolitical tensions in Europe clouded the inflation outlook for the year, and inflation is now projected to be higher and growth lower than expected in February. Though economic activities are recovering, they are barely above their pre-pandemic level.
“With this backdrop, we might see some changes in the key policy rates and a hike in home loan rates in the near future. Currently, many banks are lending home loans at around 6.5 per cent, and most home loans are below 7% now. For the past few years, the home loan rates have been the lowest historically. Since there is still no hike in the repo rate, consumers can continue to benefit by taking home loans at 6.5 to 6.8 per cent, considering their credit scores. Unchanged repo rates will instil confidence, and affordable home loans will continue to see an uptick in demand as the low-interest rates are crucial for the revival of the demand in the real estate sector,” said Adhil Shetty, CEO, BankBazaar.com.
Despite the ‘accommodative’ monetary policy stance by the RBI, it is expected that the apex bank may increase the repo rate sometime in this financial year, which will impact the EMIs. Home loan interest rates may go up for new home buyers, while the EMIs are likely to go up due to a hike in lending rates in the near future.
“In case the repo rate rises and the cost of funds go up for banks, MCLR will also move up, and loans linked to Repo Linked Lending Rate (RLLR) may see an immediate impact while home loans on MCLR linked loans (from April 2016) may also see a change in their EMIs. With this backdrop, fence-sitting home buyers should take their home-buying decisions and make the most out of the lowest interest rates,” added Shetty.
In October 2020, the RBI had rationalised the risk weights (75 per cent) for individual housing loans by linking them only with the loan to value (LTV) ratios for all new housing loans sanctioned up to March 31, 2022. Considering the importance of the housing sector, its multiplier effects, and its role in supporting the overall credit growth, the RBI has decided that the risk weights shall continue for all new housing loans sanctioned up to March 31, 2023.
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