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Home Loan EMIs to Come Down: Dipping Inflation Rate Rekindles Hopes in Middle Class People

Submitted by admin on May 17th, 2024

Interest rates on home loans are likely to be cheaper. The middle class hopes that retail inflation will once again sink below 5 percent. Cheaper home loans will cause monthly EMIs to dip. Therefore, monthly home loan installments will come easier on the pockets of middle-class people.

Amidst Parliamentary Elections, there is good news for people, especially home loan borrowers. This is because home loan EMIs is likely to come down. They became hopeful after the report of retail inflation came out.

According to Government Data, retail inflation in the country tanked to 4.83 per cent in April, which was 4.85 percent in March. In other words, retail inflation has slightly come down from the previous month.

Earlier, all rating agencies including the RBI estimated retail inflation to be below 5 percent in April. However, it is still above 4 percent limit set by the Central Bank of India. RBI’s main objective is to keep inflation rate below 4 percent. According to experts, this year’s inflation shows an impact of food prices.

Notably, retail inflation plays a crucial role in RBI’s decision regarding repo rate. Therefore, low retail inflation means some relief in repo rates. The repo rate has remained constant for the last 7 times i.e. more than a year. If inflation comes down a little bit, repo rate may also be discounted.

Repo rate has a direct relationship with Bank’s EMI. The repo rate is the interest rate at which the Reserve Bank of India lends to the public and private banks of the country. This lower repo rate means that banks will also lower interest rates on borrowing. As a result, home loan borrowers will have to pay less EMI on the loan.

Note that the current repo rate is 6.50 percent. It was 4 percent during the Corona period. As a result, home loan borrowers have to pay significantly higher EMIs.

Incidentally, inflation remained below 5 per cent for the second month in a row, but it has not yet gone below the RBI’s limit of 4 per cent. However, experts say, when the RBI decides on the repo rate at the MPC meeting in June, interest rates may also come down due to lower retail inflation. But inflation will take time to come down below 4 percent. Then it will take some time for the loan interest rate to come down further.