RBI Keeps Interest Rates Steady: What It Means For Home Loan EMIs?

The Reserve Bank of India today in its policy meet has kept the repo rates or rates at which it lends money to banks steady. The rates continue to remain at 4%.

What RBI's decision means for home loan EMIs?

For those who are planning to take home loans or have already taken a home loan, it would maintain a steady EMI. Apart from this, the accommodative stance by the RBI also means that at least for the next few quarters, we may see interest rates unlikely to change.

Having said that what we believe that interest rates are headed higher. There is a high possibility that EMIs on floating rates would rise marginally in the next few quarters, at least by the end of the year.
We are already seeing interest rates on fixed deposits edging higher and we believe that the same could happen with EMIs on home loans.

The Reserve Bank of India has to battle inflation that is running around 5.59% and an uptick in crude prices would likely aggravate the matter. This means that interest rates could be revised upwards perhaps by the last quarter of the year.

One of the biggest mandates of the RBI is to tame inflation and with crude oil prices surging, the RBI may be forced to raise interest rates in the coming policies. Remember, oil marketing companies have not been hiking fuel rates on account of the state elections. However, once the state elections are done, we might see a gradual increase in fuel rates.

While EMI on home loans would not become costlier immediately, EMIs could rise in the next few quarters, if the RBI hikes interest rates. Interest rates on personal loans, gold loans and auto loans is also likely to go higher. However, for existing loans the EMIs will not rise, as these are generally on a fixed interest rates

Globally, central banks have either raised rates or are in the process of doing so. The US Fed officials have indicated the possibility of an interest rate hike as early as march, while the Bank of England has already raised rates.

In fact, most analysts believe that the US fed is alrdeady behind the curve, when it comes to raising interest rates.