RBI keeps repo rate unchanged at 6.5%: What should borrowers do?

The Reserve Bank of India today kept the key repo rate unchanged at 6.5 per cent, defying market expectations of a potential cut amidst the looming national elections.

 RBI will continue to focus on aligning inflation towards its target of 4 per cent, which is expected to be attained by the June-August quarter. 

"The MPC will carefully monitor any signs of generalisation of food price pressures to non-food prices which can fritter away the gains in the easing of core inflation. As the path of disinflation needs to be sustained, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent in this meeting," it said in a statement.

Home loan rates are already lower compared to 2023 levels where they had started touching 9 per cent. The lowest home loan rates today are in the 8.30 range, with several lenders grouping around 8.50 for eligible borrowers.

Also Read: RBI keeps repo rate unchanged at 6.5%: What should borrowers do?

"This is a good market for new borrowers who can lock in a low spread of under 2.00 over the repo rate. On the other hand, existing borrowers will continue to have it tough for a few more months—hopefully no more than a couple of quarters—after which one hopes that inflation would have cooled enough to warrant a repo rate cut," said Adhil Shetty, CEO of Bankbazaar. 

 Existing borrowers may be paying a higher-than-market spread, well over 2.00 over the repo rate. 

"Borrowers should avoid going for fixed-rate loans since rates should start decreasing three quarters down the line. A welcome announcement in the MPC was that banks and NBFCs will need to show all rates – inclusive of documentation charges, processing fees, etc to the borrowers. This will bring transparency and allow borrowers to make informed choices," said Anshul Gupta, Co-founder and Chief Investment Officer, Wint Wealth.

"Around 2021 and 2022, the lowest rates in the market were around the 6.50, when the repo rate was 4.00, implying a spread of 2.50 over the repo rate. Those borrowers have the option of refinancing their loans to a lower spread and lower rate to save interest costs. This is important for borrowers with government banks where a large percentage of loans continue to be on older benchmarks such as MCLR and base rate where interest rates may be marginally higher compared to the repo-benchmarked loans we have today. Refinancing with one’s bank is simple and low-cost but can potentially save lakhs for borrowers," added Shetty.

Read here RBI MPC meet LIVE updates

"The RBI has extended the festive bonanza that it gave to the homebuyers in its last two policy announcements. Thus, homebuyers retain their advantage of relatively affordable home loan interest rates.  If we consider the present trends, the housing market has been unstoppable, and unchanged home loan rates will help maintain the overall positive consumer sentiments. Given that housing prices have risen across the top seven cities in the last one year, this breather by the RBI is a distinct advantage to homebuyers," said Anuj Puri, Chairman – ANAROCK Group.

What should depositors do?

With liquidity conditions being tight in the market, this is a good time for depositors to lock in rates in fixed deposit instruments like Fixed deposits and bonds. 

"We’re seeing a consumer mindset shift. From a savings mindset, the consumer is moving to an investing mindset. A consequence of this shift is that more and more consumers are getting straight into mutual funds instead of savings products such as deposits. This is causing a tightening of liquidity with banks, as many industry leaders have highlighted recently. As a result, the expectation is that there will be clamour for short-term deposits with 1-year rates nudging higher and longer-term rates possibly remaining flat. Consumers, especially senior citizens, can avail these short-term rate hikes for better interest earnings," said Shetty.