For the sixth time in a row, the Reserve Bank of India (RBI) has kept the repo rate unchanged. The decision has been taken due to global uncertainty and the need to bring down retail inflation to 4 per cent. The repo rate is the rate at which the central bank lends money to commercial banks such as SBI, Bank of Baroda and others. After RBI's decision to maintain status quo in policy rate, banks and financial institutions will largely keep lending rates stable. This means that there may not be any change in your home loan EMIs.
If the central bank alters the repo rate, the interest rates of the commercial banks also change. A rise in the repo rate will lead to a hike in home loan EMIs as banks will increase their interest rate. A borrower's home loan and EMI is dependent on the repo rate. If the RBI lowers the repo rate, banks are mandated to bring down their interest rate as well. This means the customer will have a lower burden of repayment.
RBI had last raised repo rate in February 2023 to 6.5 per cent after six consecutive rate hikes aggregating to 250 basis points since May 2022. RBI Governor Shaktikanta Das announced the decision of the Monetary Policy Committee (MPC) on Thursday, saying the apex bank has decided to keep the policy repo rate unchanged based on an assessment of the current and evolving macroeconomic situation. MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target while supporting growth, he said. This is the first bi-monthly policy following presentation of Interim Budget 2024-25 last week.
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These decisions are in consonance with the objective of achieving the medium-term target for Consumer Price Index (CPI) inflation of 4 per cent within a band of +/- 2 per cent while supporting growth. The government has mandated RBI to ensure CPI inflation at 4 per cent with a margin of 2 per cent on either side.
