Will the interest rate fall below 7% for Home loan EMI?

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The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has kept the repo rate constant in its August 2020 monetary policy. So, the persons who are paying EMIs on their loans such as a home loan or a car loan may not have much to cheer about it. But there is a possibility that the borrowers may still expect relief from the cuts announced earlier by Reserve Bank of India.

The loans which are sanctioned from 1st October 2019 including home and auto loans, the interest rate is linked to an external benchmark, which for most banks is the RBI repo rate. Now the interest rates for new home loan borrowers start from 6.7 percent. SBI home loans and HDFC home loans are available from 6.95 percent while some others offer home loans with rates of interest starting below 7 percent.

Certain banks had reduced their Marginal Cost of fund-based Lending Rate (MCLR) and repo linked lending rates in the recent past. It is an internal reference rate for the banks which is fixed by the Reserve Bank of India. Mr. Ramesh Nair, CEO and Country Head (India), of JLL point outs that the pause on rate cuts was also on the back of the previous transmission of rate cuts to the consumers through mortgage loans with a response to the cumulative rate cut of 115 basis points announced since February 2020, banks have already transmitted 70-90 basis points in their home loan portfolio, being the fastest transmission

The Reserve Bank of India has taken certain other measures as well to keep ensure liquidity and to maintain the rates low. Mr. Rohit Poddar, MD of Poddar Housing and Development mentioned that when the liquidity in the system becomes important to allow the financial institutions to transmit RBI ’s rate cut benefits with reduced loan interest rates to the borrower, an Additional Specialty Liquidity Facility (ASLF) is thereby, seen as a welcome move. 

The current repo rate is at 4 percent and the reverse repo rate is lower the repo rate, lower is the cost of funds for banks which in turn are in a position to pass on the lower rates to the borrowers