Monday, May 16, 2022

RBI Rates Unchanged: Should You Take That Home Loan Now?

Experts say interest rates seem to have bottomed out so if buying assets such as a home or car is on your cards, borrowers should go ahead.

RBI Rates Unchanged: Should You Take That Home Loan Now?

With the Reserve Bank of India (RBI) keeping repo rates unchanged for the eighth time in a row on October 8, the low-interest rates on consumer and home loans may continue at the present levels.

If you are looking to buy an asset such as a car or home on a loan, now may be a good time as interest rates are unlikely to go up anytime soon. “Ahead of festival season and taking cues from RBI, it should take a little longer for lending rates to go up. I don’t see any immediate increase in rates,” says Raj Khosla, managing director, MyMoneyMantra, a loan aggregator.

The RBI monetary policy committee (MPC) decided to keep the repo rates and the reverse repo rates unchanged at 4 per cent and 3.35 per cent, respectively. RBI last lowered the repo rate to 4 per cent in May 2020 in light of Covid’s impact on the economy.

Interest rates seem to have already bottomed out. Harsh Roongta, founder of Investment Advisers LLP, a fee-only advisory firm, “Going forward, the interest rate will likely go up. From what it looks like, they have ‘bottomed-out for now. They may not rise immediately. But they cannot fall in the near term either.”

Should you borrow now?

It may take a few more months or even a year for interest rates to inch upwards. Hence, in the near term, consumer and home loan borrowing will continue to remain appealing.

Roongta says that if you need to buy a home, you should go for it, but interest rates should not play a large role in it as they are floating in any case.  “Interest rates per se do not have any immediate impact on home loan borrowers, given that when rates increase, banks don’t increase the EMI, but only the tenure. Existing borrowers may want to shift to the new external benchmark rate-pegged loans.”

Interest rates on other consumer loans such as car and personal loans would also be more affordable now. Since these loans are, typically, available for a fixed rate of interest, it would make sense for borrowers to lock into lower rates.

Are interest rates likely to rise?

The US central bank, the Federal Reserve, has indicated that it is likely to increase interest rates in 2023. While that is some time away, should Indian borrowers be worried?

“Rate hike by the Fed could indicate FIIs backing out and a weakening rupee. However, we saw marginal impact of such news on markets this year. With a rebound in the economy and check on inflation, Fed’s stance should not concern investors in India,” says Khosla.

“For sure, in a growing and developing economy like ours, the government and regulators will always prefer to control interest rates and ensure an affordable borrowing experience, he adds.