Cheaper home loan EMIs on the horizon as RBI cuts interest rates

The Reserve Bank of India on Thursday cut the key interest rates by 25 basis points. This news will bring good cheer to borrowers who have home and consumer loans as a cut in interest rates translates into cheaper EMIs. The slowing inflation has led to this cut, experts say.

The repo rate is the rate at which the RBI lends to other banks. The repo rate has a direct impact on home loan rates and a hike in this rate would mean that anyone who has taken a home loan will have to pay more. Conversely a cut in the same lowers the burden on the home loan takers. The repo rate before the cut stood at 8%. It has now come down to 7.75%.

The cut in rates comes after 2 years. The move has pleasantly surprised many industry watchers. The effect of this decision is already being felt as the state-owned Union Bank and United Bank have lowered their lowest lending rates. One can expect many more such state owned and private banks to start lowering their borrowing rates in the coming days.

The good news for borrowers does not stop there as the RBI has hinted at further rate cuts in the near future. The move has been lauded by the many in the real estate industry who say that this could pave way to an increase in housing demand. It will also serve to buoy the sentiments of the realty sector.

C Shekar Reddy President CREDAI – National said, ‘Considering the overall economic situation and challenges being faced by the industry, we welcome the reduction in repo rates, which will ease the burden on the buyers and developers. The decision of RBI to cut the interest rates was long overdue in the environment of lower inflation and poor domestic demand. The home buyers were upbeat but in a wait and watch mode due to high prevailing interest rates. We are hopeful that with this interim announcement of rate cut the banks will take the cue and pass on the benefits to the end user which will trigger the demand and off take of housing. We are hopeful that keeping in view the low inflation RBI will continue the change of stance in the monetary policy and address the industry concerns for growth and give the necessary impetus.’