The Reserve Bank of India today kept the key interest rate unchanged at 6.5 per cent, defying market expectations of a possible cut amid the impending national elections.
The RBI will continue to focus on aligning inflation towards its target of 4 per cent, which is expected to be achieved in the June-August quarter.
“The MPC will carefully monitor any signs of generalization of pressures from food prices to non-food prices that could squander the gains made in reducing core inflation. As it is necessary to maintain the disinflation path, the MPC “decided to maintain the repurchase policy. The rate remained unchanged at 6.50 percent at this meeting,” he said in a statement.
Home loan rates are already lower compared to 2023 levels, where they had started to touch 9 percent. The lowest home loan rates today are in the 8.30 range, with several lenders pricing in around 8.50 for eligible borrowers.
“This is a good market for new borrowers who can secure a low spread of less than 2.00 on the repo rate. On the other hand, existing borrowers will continue to struggle for a few more months, hopefully no more than a couple of quarters, after which inflation is expected to have cooled enough to warrant a cut in the repo rate,” said Adhil Shetty, CEO of Bankbazaar.
Existing borrowers may be paying a higher than market spread, well above 2.00 above the repo rate.
“Borrowers should avoid opting for fixed rate loans as rates should start declining three quarters later. A welcome announcement at the MPC was that banks and NBFCs will be required to display all rates, including documentation charges, fees of processing, etc., to borrowers. This will bring transparency and enable borrowers to make informed decisions,” said Anshul Gupta, co-founder and chief investment officer, Wint Wealth.
“Around 2021 and 2022, the lowest market rates were around 6.50, when the repo rate was 4.00, implying a spread of 2.50 over the repo rate. Those borrowers have the option to refinance their loans at a lower spread and rate. This is important for government bank borrowers, where a large percentage of loans are still based on older benchmarks such as the MCLR and base rate, where the interest rates can be marginally higher compared to the buyback benchmark loans we have today. With the bank it is simple and low cost but can potentially save thousands of rupees to the borrowers,” Shetty added.
“The RBI has extended the festive bonanza it gave to home buyers in its last two policy announcements. In this way, home buyers retain their advantage of relatively affordable home loan interest rates. Considering the current trends, The housing market has been unstoppable, and “Unchanged home loan rates will help maintain overall positive consumer sentiment. As house prices have increased in all seven major cities in the last one year, this respite from the RBI is a clear advantage for home buyers,” said Anuj Puri, Chairman, ANAROCK Group.
What should depositors do?
Since liquidity conditions are tight in the market, this is a good time for depositors to lock in rates on fixed deposit instruments like fixed deposits and bonds.
“We are seeing a shift in the consumer mindset. From a savings mindset, the consumer is moving to an investment mindset. One consequence of this shift is that more and more consumers are turning directly to mutual funds instead of savings products. such as deposits. This is causing a liquidity squeeze in banks, as many industry leaders have recently highlighted. As a result, there is expected to be a clamor for short-term deposits with one-year rates rising and rates “In the longer term, they are likely to remain stable. Consumers, especially senior citizens, can take advantage of these short-term rate hikes to earn better interest income,” Shetty said.
First published: February 8, 2024 | 10:59 am IS