New Reserve Bank of India or RBI governor Sanjay Malhotra on Friday, February 7, announced that the Monetary Policy Committee (MPC) has decided to cut the benchmark repo rate by 25 basis points to 6.25%.
This rate cut, the first time in nearly five years after it remained unchanged for 11 consecutive policy meetings, is expected to lower the interest rates on loans, especially benefiting homebuyers and other types of borrowers as well.
How RBI’s rate cut can affect your EMIs
“The rate cut is expected to translate into lower equated monthly instalments (EMIs) for home loans, auto loans, and personal loans, making credit more affordable for consumers,” a News18 report quoted Adhil Shetty, as saying.
“Banks and financial institutions are likely to pass on the benefits by reducing their lending rates, which could ease financial pressures for both existing and new borrowers,” Adhil Shetty said.
An example would be if your home loan interest rate is 8.75% and if it gets reduced to 8.50% after the repo rate cut, then you will have to pay an EMI of ₹43,391, as compared to ₹44,186 earlier.
However, this is assuming that our bank also lowers its interest rate as per the rate cut. That decision remains with the bank.
The rate cut may benefit new homebuyers since banks may reduce their lending rates.
Existing borrowers can also consider refinancing their loans with another lender which offers lower interest rates, according to the report, which added that this is also a good time to negotiate with real estate developers for better prices.
Kushal Rastogi said, “With increased liquidity circulating in the economy, consumer spending is likely to rise, further stimulating business activity. This move is designed to ease borrowing costs, encouraging investment and facilitating household spending, which will help businesses adapt to the evolving economic environment.”
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