The RBI began reducing the repo rate in February this year. Since then, it has reduced the repo rate by 100 basis points, or 1 percent. This has brought the repo rate down from 6.5 percent to 5.5 percent. This has made home and car loans cheaper.
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RBI Rate Cut: Are home loans, car loans, and other loans going to become cheaper? The RBI’s Monetary Policy Committee (MPC) meeting began in Mumbai on September 29th. The results of the three-day meeting will be announced on October 1st. People are expected to receive a significant gift from the RBI during the festive season. If the central bank announces an interest rate cut on October 1st, it will make home loans cheaper. EMIs for existing home loan borrowers may be reduced. New home loan borrowers may receive loans at lower interest rates. Car loans may also become cheaper during Dhanteras and Diwali.
Home and car loans have become cheaper due to the 1% interest rate cut this year.
The RBI began reducing the repo rate in February this year. Since then, it has reduced the repo rate by 100 basis points, or 1%. This has brought the repo rate down from 6.5% to 5.5%. Although the central bank kept the repo rate unchanged in its last monetary policy (August), the 1% repo rate reduction this year has prompted banks to reduce home loan interest rates. This has resulted in lower EMIs or shorter loan tenures for home loan borrowers.
Home loans may become cheaper after RBI cuts repo rate on October 1
If a customer took a home loan of ₹50 lakh in January this year at an interest rate of 8.5%, the 100 basis point reduction in interest rates would reduce their loan tenure by 206 months. This would result in interest savings of approximately ₹14.78 lakh. If the customer had asked the bank to reduce the EMI instead of the loan tenure, the EMI reduction would have saved them approximately ₹7.12 lakh. However, this is a standard estimate. The reduction in a home loan customer’s loan repayment period will depend on the rate reduction by their bank.
Customers looking to purchase home loans and car loans during the festive season may receive some good news.
BankBazaar CEO Adil Shetty said, “With the festive season underway, it is expected that the RBI may reduce the repo rate by 25 basis points. If this happens, it will boost growth while keeping inflation under control. For customers, the rate reduction will reduce their loan costs.”
Reducing the repo rate now will support economic growth.
Will the RBI reduce interest rates on October 1? Economists are divided on this issue. SBI Research recently stated in its report that the repo rate should be reduced by 25 basis points. It stated, “A reduction in interest rates is appropriate to boost growth, especially since inflation is expected to remain under control. Retail inflation could remain at or below 4% in FY27. Following the reduction in GST, inflation could fall to 1.1% in October, which would be the lowest since 2004.”
RBI has room to reduce interest rates in December as well.
IDFC First Bank stated in its report, “Although there is room for a rate cut considering real rates, the greater benefit will accrue to growth. The reduction in GST could boost GDP growth by 0.6 percent. However, US trade tensions could reduce growth by 1 percent. In such a situation, the RBI may wait for the picture to become clearer after the festive season. Then, it may reduce interest rates in December.”
All eyes will be on the RBI Governor’s announcement on October 1st at 10 am.
RBI Governor Sanjay Malhotra will announce his monetary policy decisions on October 1st at 10 am. He will also share his economic growth and inflation projections. His announcement will be closely watched by home loan and car loan borrowers, as well as the stock and bond markets. Therefore, it’s best to wait for Malhotra’s announcement on October 1st before deciding on a home loan or car loan.
