Home loan borrowers heaved a sigh of relief on April 8, when Reserve Bank of India (RBI) governor Shaktikanta Das announced that the repo rate would remain unchanged.
Since floating-rate home loans sanctioned after October 1, 2019 are linked to external benchmark – repo rate in case of most banks – RBI’s action has a direct and immediate bearing on such borrowers’ EMIs.
However, while the monetary policy committee voted to hold the rate and retain accommodative stance for now, it also signaled withdrawal of accommodation to keep inflation in check. “The MPC also decided to remain accommodative while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth,” the monetary policy resolution 2022-23 stated.
Experts say that this is an indication that repo rate will be hiked in June to contain rising inflation in the country. Consequently, loan and deposit rates will go up too. Some banks like the Bank of Baroda (BoB) have already started hiking their deposit rates. Home loan borrowers, especially those who have taken loans after October 1, 2019, could find it tough to deal with higher rates as they have been used to benign interest rate scenario for more than two years. They will have to adapt to the likely change in interest rate cycle by adopting a few measures to keep their interest burden/EMI in check. “Making a part pre-payment, increasing the EMI and switching to another lending institution if its interest rate is at least 25 basis points lower than your current lender’s are some measures that you can take to reduce your interest burden that is bound to go up if rates go up in the days to come,” says Adhil Shetty, Co-founder and CEO, Bankbazaar.com.