Inflation at 19-month low, RBI set to give big relief in EMIs: Know what will happen to your home loan

In what comes as a surprise, the CPI or retail inflation continues to slip drastically. The food inflation too has been in deflation since past few months. This results in more room for RBI to trim down its policy repo rate in April 2019 policy. Interestingly, the possibilities are not just another 25 basis point cut, in fact the bar is set high for RBI. If this scenario is on cards, then a ray of good news will flow for borrowers, because banks will be well placed to reduce interest rates further on home loan. Hence, RBI’s rate cut will make your EMIs cheaper. At 19-month low, the country's inflation has come down to 2.05% in January 2019. This was undoubtedly due to food inflation which further widened its deflation trend. The Consumer Food Price Index (CFPI) has come at -2.99% in the latest month, with negative trend in prices of Pulses and Products (-5.5%) and Vegetables (-13.3%), Sugar and Confectionery (-8.2%) and Eggs (-2.4%).

In January, core inflation has come at 5.38% in Jan’19 from 5.73% previous month due to decline in Clothing (2.93%), Personal Care (4.32%) and Housing (5.20%) inflation. Dr. Soumya

Kanti Ghosh, Group Chief Economic Adviser at SBI said, “We are surprised that such continued decline in food prices have been missed in inflation forecasts and even MPC continues to flag non existent inflation risks.”

Ghosh added, “We believe time has now come to meaningfully analyse the continued decline in food prices. Interestingly recent data released by CSO shows that % share of food expenditure in total consumption expenditure is at 30% down from 40% in FY05.”

Shockingly, Ghosh also points out that, any outlier movement in Rural Core CPI beyond Jan’19 would mean a decisive structural break / data issues! If this does not happen, then CSO possibly made a data error! 

source: tradingeconomics.com

For RBI, Ghosh adds, “With inflation now set to be below 4% for most of 2019, a rate cut in April looks a certainty and it will now be a choice between a 25 or a 50 bp rate cut.” Be 25 basis points or 50 basis points, both come as a good news for banks and borrowers. Because, then the policy repo rate stand between 5.75% or 6%. If 5.75% reality is there, then India’s repo rate will come at nearly 9-years low, as last time it was seen in July 2010. 

When there is a rate cut, it directly impacts the home loan interest rates because they are linked with floating rates. Banks have more capacity in cutting home loan interest rates. 
Repo rate is at which RBI charges scheduled commercial banks (SCB) for borrowing with them. Banks generally increase and decrease their loans rate for individual, depending upon their borrowing of funds from RBI. If RBI makes repo rate cheap for banks, then the lenders will also make your loans rates cheap. The same is vice versa in rising repo rate. 

When home loan rates are cheaper, this means EMIs will also be affordable and many homebuyers will be encouraged for more loans at banks. This will increase banks advances and hence earnings. Repo rate is not directly witnessed in home loan rates, but their downward trend is seen in MCLR which is a benchmark set for retail loans. 

Isn’t it amazing, your EMIs on home loan will become cheap ahead! Let’s compare banks.

With the February 2019 rate cut, SBI has already made the move by reducing home loan rates up to Rs 30 lakh. 

SBI’s home loan interest rates: At SBI, for women will now be charged interest rate between 8.75% to 8.85% for home loan up to Rs 30 lakh. Non-salaried women will get interest rate ranging from 8.90% to 9%. The others categories will now have home loan interest rate between 8.80% to 8.90%, whereas the non-salaried ones will see rate of 8.95% to 9.05%. 

HDFC Bank home loan interest rates: At HDFC Bank, the home loan rate for women up to Rs 30 lakh loan stands at 8.90%, whereas the non-salaried women will bear 9.05% interest rates. The others category sees 8.95% interest rate on salaried group, on the other hand, the non-salaried group records 9.10% interest rate. 

ICICI Bank home loan interest rates: They offer up to Rs 35 lakh in minimum category, and it has 9.10% interest rate on home loans to salaried borrowers. This means no matter either you are a women or others category, both pay similar interest rate at ICICI. Meantime, ICICI Bank also gives 9.15% interest rate to self-employed for home loan up to Rs 35 lakh. Notably, one can avail for home loan up to Rs 30 lakh at ICICI, as the limit is Rs 35 lakh. 

Axis Bank: This bank charges interest rate of 8.90% to salaried employees for their loan up to Rs 30 lakh. Meanwhile, 8.95% interest rate is given to self-employed for same loan amount.

Other banks like Yes Bank, PNB, Canara Bank, United Bank of India, IDFC Bank, IDBI Bank, Bank of India, Syndicate Bank and Bank of Baroda offer home loan rates ranging from 8.70% to 9.35%.