Know the effect of repo rate on housing loans.
RBI Monetary Policy Repo Rate Today: On December 6, 2024, the Monetary Policy Committee of the RBI decided to keep the repo rate steady at 6.50%. This means that there will be no immediate change in home loan EMIs or the real estate market. Since the repo rate remains unchanged, banks are unlikely to adjust their lending rates, so your EMI will remain relevant for now.
The repo rate, set by the Reserve Bank of India (RBI), is a major factor shaping home loan interest rates across the country.
To ease potential liquidity stress, the RBI cut the Cash Reserve Ratio (CRR) by 50 basis points to 4 percent, a move of Rs. 1.16 lakh crore will unlock 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 control liquidity in the banking system. It specifies the percentage of total deposits of a commercial bank that must be maintained as reserves in the form of cash with the RBI. Banks are not allowed to use this amount for lending or investment purposes.
Will CRR rate cut affect home loan EMIs?
If the home loan interest rate comes down due to the CRR cut, your EMI may come down. The reduction will depend on how much the interest rate falls.
A fall in CRR could also lead to easier availability of loans to home buyers, which could potentially increase housing demand.
So, while the CRR cut could potentially reduce home loan EMIs and interest rates, its direct impact on consumers may take some time and depends on how banks react to the policy change.
Industry reaction
Nahar Group Vice Chairperson and NAREDCO Maharashtra Manju Yagnik said the RBI’s decision to keep the repo rate at 6.5% for the 11th consecutive time is a balanced approach to managing 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 important to maintain economic momentum, Yagnik said.
“A fixed rate ensures consistent repayment terms, which boosts homebuyer confidence and encourages investment in the sector. Rising property prices, stable credit conditions and a stable market make real estate a key driver of economic growth, increasing 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 step for the real estate sector. As per a Knight Frank report, the sector is currently valued at $493 billion and contributes 7.3% to India’s GDP, we are optimistic about its future growth prospects.”
“Our projections suggest that this sector will grow by 2047 to Rs. 5.8 trillion, which accounts for 15.5% of India’s economic output, making this stabilization in interest rates a timely and welcome move. This stability in interest rates is especially beneficial for high-value markets like Mumbai and Pune,” Jumani added.
Jumani added that with stable interest rates, buyer confidence is likely to increase, which will drive steady demand and support growth in the sector.
Moreover, the positive relationship between tax relief measures and higher levels of property sales is expected to continue. Stable interest rates and reduced stamp duty will continue to boost property sales.
“This favorable environment will benefit both developers and home buyers, ultimately spurring growth in the real estate sector.”
Interest rate fluctuations affect the demand for real estate. Lower interest rates generally increase demand by making borrowing more affordable, which can increase property prices. Conversely, higher interest rates can reduce demand and result in softer property prices.
Relief for borrowers and businesses?
The rate cut was expected to provide relief to homebuyers, small businesses and corporations by reducing borrowing costs.
Way forward
As the year draws to a close, all eyes will be on how this policy decision impacts the broader economic trajectory and whether it successfully boosts credit uptake and demand.