Home loan EMIs likely to fall after RBI slashes repo rate

India’s central bank has reduced its benchmark repo rate by 25 basis points to 5.25%, potentially pushing home loan interest rates down to levels not seen since the pandemic. This adjustment in monetary policy is likely to benefit new borrowers significantly.

Major public sector lenders like Union Bank, Bank of India, and Bank of Maharashtra currently offer home loans at 7.35%. Following this rate revision, these institutions are expected to lower their rates to approximately 7.1%.

Borrowers with home loans of ₹1 crore over 15 years could see monthly EMIs reduced by about ₹1,440 after the rate adjustment. The change presents both opportunities and challenges for financial institutions.

Banking analysts note that lenders may need to cut deposit rates or adjust their benchmark spreads. While this could pressure net interest margins temporarily, non-banking financial companies may benefit quicker from reduced borrowing costs.

The Reserve Bank’s neutral policy stance and planned liquidity measures should ensure effective transmission of this rate cut across the financial system. Significant liquidity injections are expected through two key mechanisms:

An upcoming ₹1 trillion open market operation and a $5 billion foreign exchange swap could collectively infuse approximately ₹1.45 trillion into the banking system. The Monetary Policy Committee’s unanimous decision reflects a growth-focused approach, leveraging current low inflation conditions to stimulate economic activity.

(With inputs from IANS)