Will RBIs 25 basis points repo rate cut impact your home loan EMIs?

Key Highlight: 

• Policy repo rate at 6% from previous 6.25% 
• Statutory Liquidity Ratio at 20%
• RBI maintains neutral stance

In line with market expectation, the Reserve Bank of India (RBI) during its third bi-monthly monetary policy review, maintained a neutral stance but brought down repo rate by 25 basis points to 6%.

Repo rate is the interest rate at which the central bank charges the commercial banks for lending funds. While borrowing from RBI, banks will have to pay a lending rate which brings repo rate in picture. When this benchmark rate is lower, banks find it as a good option to borrow from RBI then.

Ravindra Pai, MD, Century Real Estate Holdings Pvt Ltd said, “It is a welcome move, especially to combat the odds industry was seeing in recent times. Cheaper home loan definitely will boost positive sentiments amongst the home buyers and in turn will help the developers to gain the momentum.”

Narasimha Swamy N, Head of Sales, Marketing & Customer service, VBHC said, “The lowering of the Repo rate by 25 bps will help curb to some extent the negative sentiments in the real estate sector. The move which aims to drive growth is expected to infuse more liquidity in the system; a much needed relief for the real estate sector.''

Data published by RBI showed that housing loan stood at Rs 8,58,800 crore in May 2017, rising by 12.07% compared to Rs 7,66,300 crore in the similar month of the previous year. Between, April – May 2017, housing loan stands at Rs 17,16,600 crore.

Housing loan growth in FY17 stood at Rs 8.20 lakh crore, rising 9.80% from Rs 7.46 lakh crore in FY16.

After the demonetisation move, analysts have been estimating banks overall credit growth to reach at 10% by FY18 due to performance in housing loan.

ICICI Securities in its earlier report said, “We expect retail credit demand to be driven by home loans, given the increased affordability on falling product rates, favorable demographic drivers (nuclear families, internal migration) and government incentivisation (upfront interest subvention in affordable housing)."

RBI cuts repo rate by 25 basis points; lowest since 2010