RBI Maintains Status Quo: Repo Rate Steady at 6.5%

5 Apr 2024 , 01:08 PM

As of right now, your house loan interest burden and equivalent monthly instalments (EMI) won’t alter because, on April 5, the Reserve Bank of India (RBI) maintained the repo rate at 6.5% for the seventh consecutive month.

Banks have been tying floating-rate retail loans to an external benchmark—typically the repo rate—since October 1, 2019. Thus, the interest rates on these loans are directly impacted by changes in the repo rate.

For a few more months, existing borrowers will have to deal with higher interest rates; however, economists anticipate that inflation will decline to levels that are within the RBI’s comfort zone, opening the door for rate reductions. According to RBI governor Shaktikanta Das, inflation is still above the 4% target as of April 5.

The market rates were at their lowest in 2021 and 2022, around 6.5%, at a time when the repo rate was 4%, meaning there was a 2.5% gap above the repo rate. To avoid paying interest, those borrowers can choose to move to other lenders who provide a narrower spread and lower interest rates.

Despite stable repo rates, HDFC Bank has effectively raised home loan rates for new borrowers by 35 basis points (bps) this year. One tenth of a%age point is equal to one basis point. In January, the lowest interest rate available for a ₹50 lakh house loan at HDFC Bank was 8.35%; as of right now, the lowest rate is 8.70%.

The effective new house loan rates of Axis Bank and Karur Vysya Bank have also increased by 5 basis points, per data on interest rates provided by Paisabazaar. For a loan of ₹50 lakh, the lowest house loan rates available in January were 8.70% at Axis Bank and 8.95% at Karur Vysya Bank. These rates increased to 8.75% at Axis Bank starting in March.

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