For most home loan borrowers, the relief in the form of lower EMIs may now have to wait until at least December 2024. Economists and financial experts have been waiting with bated breath for the much-awaited reduction in interest rates, but it may take some more time than expected and the Reserve Bank of India is seen continuing with the status quo in its monetary policy review to be announced on 9 October 2024.

What’s Happening?

At this juncture, the RBI has maintained the repo rate-the rate at which it lends to commercial banks-unchanged at 6.5% since February 2023. Other central banks have cut rates on their shores. India is yet to go on a rate-cutting spree; and all this might put some more pressure on borrowers when it comes to lower interest rates for loans.

Economists say, though there’s a slight lesser chance of repo rate being cut by RBI in October 2024, there is a strong likelihood of a cut in December 2024 and another could come in February 2025. This will be through slow reduction by way of 25 bps cuts in two consecutive trims and would bring solace to EMI payers – loans taken for the purchase or construction of homes. October would mark a shift from “withdrawal of accommodation” to “neutral” for the Monetary Policy Committee, which would then mean a rate cut is just around the corner, says Aditi Nayar, chief economist at ICRA.

Why so late?

Domestic and global economic conditions are also responsible for rates cuts becoming late in occurrence. Inflationary pressures are easing a little, but the RBI will wait for this to become well under control before it ventures into rate-cutting sprees. Apart from that, the cycle of global monetary easing, wherein central banks around the world are cutting rates, will have an influence on RBI decisions in the days ahead.

Kanika Singh, Chief Risk Officer, Indian Mortgage Guarantee Corporation, feels that the RBI would see at least a 25 bps cut in the near term, with its improving inflationary outlook. “Better now to wait for December for the RBI to gauge better domestic economics and global nuances,” she adds.

What it means for consumers?

Hence, an adjustment by repo rate would work the best for repo-link consumers of home loans where the interest rates get adjusted in terms of the movement of RBI’s repo rate. Any cuts will bleed down the interest rates progressively for the consumers, and they would eventually pay reduced figures in monthly EMIs.

Till now, perhaps some people have had to live with interest rates and payments only “larger than desired.” A repo cut will certainly be welcome relief but, for those customers having longer tenure loans, will benefit more from cumulative small cuts in the rate.

Preparing for Tomorrow

While the wait for lower home loan interest rates persists, the current scenario does present an opportunity for borrowers to reassess their financial plans. It is clear that rate cuts are in the offing, and therefore chances of reduced EMIs are an added expectation, which would free up disposable income that might be invested in other avenues or financial goals.

As this is the scenario, the borrowers have to keep a watch on the changes in monetary policies and be ready to change their financial plan by the various opinions the RBI may possess.

Conclusion

At least, there is some bit of silver lining. December 2024 and February 2025 are also rate-cut months, but till then, one would have to be very patient and financially careful.

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