No Immediate Relief in Home Loan EMIs, but Good News Expected by Year-End

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The RBI has not reduced interest rates. On the morning of June 7, at 10 a.m., the Governor of the Reserve Bank of India (RBI), Shaktikanta Das, announced the monetary policy. He stated that the RBI’s Monetary Policy Committee has decided to keep the repo rate at the current level of 6.5%. This marks the 8th consecutive monetary policy where the central bank has not made any changes to the repo rate. This means that home loan EMIs are not expected to decrease at the moment. However, this was anticipated beforehand.

Positive Changes Expected by Year-End

Experts suggest that while the RBI has not reduced the repo rate, it may cut interest rates by the end of this year for several reasons. The primary reason is that the RBI is closely monitoring the actions of the US central bank regarding interest rates. There is an expectation that interest rates in the US will decrease by the end of this year. Following this, the RBI may decide to reduce the repo rate. The conditions of the domestic economy also support this possibility. This year’s monsoon rainfall is expected to be good, positively impacting agricultural production. This will boost the production of fruits, vegetables, and grains, positively affecting food inflation. Retail inflation will align with the RBI’s target.

Domestic Economy in Good Health

India’s economic growth remains strong, and a good monsoon will further enhance growth. Additionally, economic data looks positive. Thus, the RBI might reduce interest rates by the end of this year. Experts note that the real estate sector has shown good growth. A reduction in home loan interest rates would boost the real estate sector, directly benefiting the economy. The real estate sector is one of the largest employment-generating sectors. Therefore, a reduction in the repo rate would significantly boost this sector’s growth.

Home Loan EMI: Home Loan Interest Rates Rise Despite Stable Repo Rate

HDFC Bank has increased home loan interest rates by up to 40 basis points for new customers, despite the stable repo rate. In January this year, the lowest interest rate on a 5 million INR home loan was 8.35%, which has now increased to 8.75%. According to Paisa Bazaar, SBI and Bank of India have also raised their home loan interest rates. For a 5 million INR home loan, their interest rates are 8.40% and 8.30%, respectively.

Stable Repo Rate… So Why Did the Stock Market Soar? Sensex Surges by 800 Points
The 30-share BSE Sensex opened at 75,031.79, down from its previous close of 75,074.51, and was trading sluggishly. However, as soon as the RBI announced GDP growth projections, it surged by 800 points.

The RBI has announced the results of the second MPC meeting of the current financial year, and once again, no changes have been made to the policy rates (Repo Rate). This means no immediate relief for the general public. However, despite the decision to keep the repo rate unchanged, the stock market’s sluggishness suddenly turned into a stormy surge, with both indices rallying. The Bombay Stock Exchange’s Sensex jumped by 800 points, and the Nifty also climbed by 200 points.

RBI Increases GDP Growth Estimate

To start with, the sudden rise in the stock market can be attributed to the RBI’s decision to keep the Repo Rate steady at 6.50 for the 8th consecutive time, with the last change occurring in February 2023. However, the central bank has increased India’s GDP growth estimate. Previously, the RBI projected a 7% GDP growth for FY25, but during the MPC meeting, Governor Shaktikanta Das announced that the country’s economy is expected to grow at a rate of 7.2%. This means a 20 basis points increase in the GDP growth estimate.

As soon as the new GDP growth estimates were released, the stock market responded positively, with Friday’s sluggish market showing a sudden surge.

Market Excited by New Growth Estimates

On Friday, the 30-share BSE Sensex opened at 75,031.79, down from its previous close of 75,074.51, and was trading sluggishly. However, as soon as RBI Governor Shaktikanta Das announced the new GDP growth estimates during the MPC meeting, the stock market saw a sudden surge. At the time of writing, the Sensex was trading at 75,874.48, up by 799.97 points or 1.07%.

Similarly, the National Stock Exchange’s Nifty also saw a dramatic rise. The Nifty 50 opened at 22,821.85, slightly up from its previous close of 22,821.40, and quickly surged by 227.10 points or 1.00%, reaching 23,048.50.

New GDP Estimates

In FY2024’s January-March quarter, India’s GDP growth was 7.8%. The provisional estimate for the entire fiscal year 2024 is 8.2%. The central bank has raised the GDP growth estimate from 7% to 7.20%, an increase of 20 basis points. The RBI has also increased the GDP estimate for the first quarter of FY2025 from 7.1% to 7.3%, for the second quarter from 6.9% to 7.2%, and for the third quarter from 7% to 7.3%. For the fourth quarter, the GDP estimate has been increased from 7% to 7.2%.

What Did the RBI Governor Say?

RBI Governor Shaktikanta Das stated that the provisional estimates released by the National Statistical Office (NSO) place India’s real GDP growth for the fiscal year 2023-24 at 8.2%. For 2024-25, domestic financial activities remain resilient. Strong domestic demand has sustained manufacturing activities. He noted that the eight core industries showed good growth in April 2024. The manufacturing PMI remained strong in May 2024 and is indeed the highest globally.