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RBI Keeps Interest Rates Steady: What Does This Mean For Home Loan EMIs?

Investment

oi-Sunil Fernandes

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Today, the Reserve Bank of India, in its policy, has kept stable the repo rates or the rates at which it lends money to banks. Rates remain at 4%.

What does the RBI ruling mean for home loan EMIs?

For those who are considering taking out home loans or have already taken out a home loan, this would keep an EMI stable. Apart from that, the dovish stance of the RBI also means that at least for the next few quarters, interest rates are unlikely to change.

That said, we believe interest rates are headed up. It is highly likely that floating rate EMIs will rise slightly over the next few quarters, at least by the end of the year.
We are already seeing rising interest rates on term deposits and believe the same could happen with EMIs on home loans.

The Reserve Bank of India has to fight against inflation which is hovering around 5.59% and a rise in crude prices would likely worsen the situation. This means that interest rates could be revised upwards perhaps by the last quarter of the year.

One of the biggest mandates of the RBI is to control inflation and with soaring crude oil prices, the RBI might be forced to raise interest rates in upcoming policies. Remember that the oil marketing companies did not raise fuel prices because of the national elections. However, once the national elections are over, we may see a gradual increase in fuel prices.

While EMIs on home loans would not become more expensive immediately, EMIs could increase over the next few quarters, if the RBI raises interest rates. Interest rates on personal loans, gold loans and auto loans are also expected to rise. However, for existing loans, EMIs will not increase, as these are generally at fixed interest rates

Globally, central banks have raised rates or are in the process of doing so. US Fed officials have signaled the possibility of an interest rate hike as early as March, while the Bank of England has already hiked rates.

In fact, most analysts believe that the US Fed is already behind the curve when it comes to raising interest rates.

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Article first published: Thursday, February 10, 2022, 10:34 a.m. [IST]


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