RBI's Upcoming Decision on Repo Rate: home loans will rise?

The Reserve Bank of India (RBI) is scheduled to announce its bi-monthly monetary policy decision on August 10, 2023. There is a lot of speculation about whether the RBI will increase the repo rate in this meeting or keep it unchanged.

The repo rate is the rate at which the RBI lends money to commercial banks. When the repo rate increases, it becomes more expensive for banks to borrow money, which in turn leads to higher interest rates on loans. This is why home loan interest rates tend to rise when the repo rate increases.

Inflation has been a major concern for the RBI in the past. The Consumer Price Index (CPI) inflation rate has been above the RBI’s target of 6% for several months. The RBI kept the repo rate unchanged at 6.5% since February after back-to-back hikes in the rate.

Some factors could lead the RBI to keep the repo rate unchanged this time as well. The Indian economy is showing positive signs and growing steadily, and a rate hike may impact consumers’ sentiments. Additionally, the RBI may want to wait to see how the impact of the recent interest rate hikes on inflation before making a decision.

If the RBI does decide to increase the repo rate, home loan interest rates will likely rise again. This would be bad news for homebuyers, who are already facing high housing prices. However, it is important to note that the RBI is committed to keeping inflation under control, and a rate hike decision will be based on the current inflation trend.

What does this mean for homebuyers?

Buyers are concerned before the big decision as repo rate and home loan interest rates are linked. If the repo rate increases, home loan interest rates are likely to follow suit.

If the RBI does increase the repo rate, home loan interest rates will likely rise again. This would mean that homebuyers will have to pay more for their loans, which could make it more difficult to afford a home.

However, there are a few things that homebuyers can do to prepare for a potential rate hike. First, they can shop around for a loan with a fixed interest rate. This will protect them from rising interest rates in the future. Second, they can make a larger down payment on their home. This will reduce the amount of money they need to borrow, and it will also lower their monthly payments.

If you are considering buying a home, it is important to compare the interest rates of different lenders and improve your credit score to borrow funds at a competitive rate.