Home Loans May Go Cheaper As RBI Reduced Repo Rate By 25 bps
In a move that would bring down the cost of borrowing, the Reserve Bank of India (RBI) on February 7 reduced repo rate by 25 basis points (bps) on expectations of keeping inflation within its target range. Announcing its sixth bi-monthly policy, the central bank has also changed its policy stance from neutral from the earlier calibrated tightening, indicating rates may see further reduction in the upcoming policies.
Incidentally, this is the first policy review under new RBI Governor Shaktikanta Das, who took charge in December.
By implementing a 25-bps hike in repo rate in August, the RBI has brought repo rate to 6.50 per cent last year.
Repo rate is the rate at which the central bank lends money to scheduled banks. Since the cost of borrowing money goes down for banks, they are expected to pass on the benefits to other borrowers. The move is likely to give a boost to the real estate sector, by making home loans more affordable.
Real estate developers have welcomed the RBI decision.
“The rate reduction is in line with our expectations as the banks and non-banking finance companies are staring at a liquidity crisis, resulting in dampening of the overall business environment. The move will help the situation,” says Paradigm Realty Managing Director Parth Mehta.
Lauding the government for taking effective steps to boost the sector, developers body Nardeco has said the repo rate reduction will lead to an increase in home sales.
“This is the perfect follow-up to the Budget. The move will not only enhance liquidity in the economy but also boost investment and give the economy a positive growth phase. From a real estate perspective, this will impact home loan interest rates,” says Naredco President Niranjan Hiranandani.
The RBI will hold its next monetary policy review meeting between April 2 and 4.
Current Key Rates
|Date||Repo Rate (in %)||Reverse Repo Rate (in %)||CRR (in %)||SLR (in %)|
|Sep 2015||6.75||5.75||No Change||No Change|
|Jun 2015||7.25||6.25||No Change||No Change|