RBI Keeps Interest Rates Unchanged, But Home Loan EMIs May Still Come Down

RBI's decision to keep policy rates unchanged surprised banks, economists and everyone who is looking forward to a rate cut for sentiment revival.
RBI's decision to keep policy rates unchanged surprised banks, economists and everyone who is looking forward to a rate cut for sentiment revival.

Shocking industry and media in equal proportions, RBI decided to keep interest rates unchanged. After demonetization pushed real estate into slumber, developers and realtors were pinning hopes on Governor Urijit Patel's maiden Monetary Policy review for a revival of sentiments. A 25 basis point cut was the least expected, a 50 bps cut would have been a bonus but instead, RBI decided to maintain the status quo.


Let’s try to understand why it happened and what could be in store in the coming months-


RBI has a worry that increasing prices of wheat, gram and sugar, and, concerns around global crude prices firming up may have an adverse effect on inflation in the coming months. This is one of the reasons that kept India’s central bank from bringing down the interest rates. Also, it wouldn't be too much to guess that the government and central bank are waiting for 31st December to pass to assess the situation and then take a call on other things including interest rates.


But this has not gone too well with some of the country’s biggest developers including Niranjan Hiranandani, CMD, Hiranandani Group


''There was a huge expectation not only in the real estate sector but across industries and sectors that there would be rate cut so this is a huge disappointment. RBI has cut 1.75% rate since 2015 but the banks have not passed on the benefit to the customers. Some rate cut would have helped the market, if not anything but psychologically.''  


On the other hand, some developers are still keeping the hope alive


Vineet Relia, Managing Director, SARE Homes


''Rates are bound to come down because of the huge cash flow that banks have been flushed with. We were expecting an instant relief which has not happened but banks have no choice but to cut down the interest rates. So, we are still hopeful that it will happen but now it will happen at the bank level.''  


Jaxay ShahNational President Elect– CREDAI 


''Though it is unfortunate that the Central bank left all policy rates unchanged today ,we are still hopeful and understand that maybe the policy makers are waiting till 31 December to see the final outcome of demonetisation post which an aggressive announcement on rate cuts will be made sooner than later.'' 




India’s biggest lender has also hinted that markets should not lose all hope


 Rajnish Kumar, MD, National Banking, SBI


''Incremental CRR requirement will be withdrawn from 10th December so banks will have enough funds and elbow room to bring down MCLR. We will analyse the cost equation and figure out how much we can bring down the MCLR to. We have enough liquidity right now but the situation will change when there is enough currency in circulation. But we will pass whatever benefit we can to the borrowers.''  



For the uninitiated, MCLR means marginal cost of funds or the cost banks incur to acquire funds. With deposits surging to unprecedented levels, the cost of funds for banks is bound to come down. According to RBI rules, all the loans taken after April 1, 2016 are to be linked to MCLR. Simply put, lower the MCLR, lower will your interest rate. Some banks have opted to re-set their MCLRs every six months while others have decided to revise it annually. Therefore, even though RBI hasn’t cut repo rates but since this cost has gone down, people who have taken loans after 1st April, 2016 will benefit in the form of lower EMIs. However, those who have their home loans linked to bank’s base rate cannot expect any relief in the immediate future. They can try converting their loans to MCLR-linked loans. 

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