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Know repo rate’s impact on housing loan.
Know the impact of repo rate on home loan interest rates and EMI
RBI Monetary Policy Repo Rate Today: On December 6, 2024, the RBI’s Monetary Policy Committee decided to keep the repo rate steady at 6.50%. This means there won’t be any immediate changes to home loan EMIs or the real estate market. Since the repo rate remains unchanged, banks are unlikely to adjust their lending rates, so your EMIs will stay consistent for now.
The repo rate, set by the Reserve Bank of India (RBI), is a key factor in shaping home loan interest rates across the country.
To ease the potential liquidity stress, the RBI slashed Cash Reserve Ratio (CRR) by 50 basis points to 4 per cent, a move that would unlock Rs 1.16 lakh crore bank funds.
RBI MPC December 2024 Updates
What Is CRR?
The Cash Reserve Ratio is a key monetary policy tool used by the RBI to regulate liquidity in the banking system. It refers to the percentage of a commercial bank’s total deposits that must be maintained as reserves with the RBI in cash form. Banks are not allowed to use this amount for lending or investment purposes.
Will CRR Rate Cut Impact Home Loan EMI?
If home loan interest rates drop due to a CRR cut, your EMI could go down. The extent of the reduction would depend on how much the interest rate is cut.
A reduced CRR could also lead to easier availability of loans for homebuyers, potentially increasing the demand for housing.
So, while a CRR cut can potentially reduce home loan EMIs and interest rates, its direct effect on consumers might take some time and depend on how banks react to the policy change.
Industry Reaction
Manju Yagnik, Vice Chairperson of Nahar Group and SVP of NAREDCO Maharashtra said that the RBI’s decision to retain the repo rate at 6.5% for the 11th consecutive time is a balanced approach to manage growth and inflation.
With India’s GDP expected to grow at 6.5–7% in FY 2024-25 and the real estate sector contributing 7% to the economy, this stability is vital for maintaining economic momentum, Yagnik said.
“A steady rate ensures consistent repayment terms, which increases the confidence of homebuyers and encourages investments in the sector. With property prices rising, stable lending conditions and a steady market make real estate a key driver of economic growth, boosting demand and contributing significantly to India’s economic progress,” Yagnik added.
Vishal Jumani – Joint Managing Director, Supreme Universal, said, “RBI’s decision is a great move for the real estate sector. As per the Knight Frank report, the sector is currently valued at $493 billion and contributing 7.3% to India’s GDP, we’re optimistic about its future growth prospects.”
“Our projections indicate that the sector will increase to Rs 5.8 trillion by 2047, accounting for 15.5% of India’s economic output, making this stability in interest rates a timely and welcome move. This stability in interest rates is particularly beneficial for high-value markets like Mumbai and Pune,” Jumani added.
Jumani added that with steady interest rates, buyer confidence will likely increase, driving steady demand and supporting sector growth.
Moreover, the positive correlation between tax relief measures and high-end property sales is expected to persist. The combination of stable interest rates and reduced stamp duty will continue to drive sales of properties.
“This favorable environment will benefit both developers and homebuyers, ultimately fostering growth in the real estate sector.”
Interest rate fluctuations impact real estate demand. Lower interest rates generally boost demand by making borrowing more affordable, which can drive up property prices. Conversely, higher interest rates may reduce demand and result in softer property prices.
Relief for Borrowers and Industry?
The rate cut was expected to bring relief to homebuyers, small businesses, and corporations by lowering borrowing costs.
Way Forward
As the year-end approaches, all eyes will be on how this policy decision influences the broader economic trajectory and whether it successfully boosts credit uptake and demand.
