Will RBI MPC's decision on repo rate bring down your home loan EMI?

Whenever the Reserve Bank of India governor announces the repo rate after the monetary policy committee's bimonthly meeting, many home loan borrowers take a keen interest in the announcement. Any change in the repo rate can increase or decrease their home loan equated monthly instalment (EMI).

So when RBI governor Shaktikanta Das was announcing the repo rate after the MPC meeting today (Wednesday, October 9, 2024), home loan borrowers were keen to know whether they needed to shell out more from their pockets or if the announcement would help them save money.

In this write-up, know what the repo rate is, what its relation is with the home loan interest rate, and whether the RBI MPC's today's decision will have some impact on your home loan EMI.

What is repo rate?

The repo rate, repurchase agreement or repurchasing option, is the interest rate at which the RBI lends money to commercial banks.

When the economy grows, liquidity in the market rises, loans are available at a cheaper rate, and inflation is rising, the RBI takes a measure to control this situation by making borrowing costly.

It increases the repo rate. Since borrowing becomes costly for commercial banks, they also react by increasing their loan interest rates.

While the increased rates discourage people from taking loans, they increase EMIs for the existing borrowers. 

How repo rate impacts your home loan EMI

When the RBI increases the repo rate and commercial banks react by increasing interest rates, the home loan EMI becomes higher.

In contrast, if the RBI decreases the repo rate, home loans become cheap and the EMI becomes lighter.

So, a low repo rate helps borrowers save money on their EMI.

Will RBI's today's decision on repo rate impact your home loan EMI?

Since the RBI has not changed the repo rate for the 10th consecutive review, it is highly unlikely that banks will increase home loan rates.

As a result, your home loan EMI is most likely to remain the same.