Your Home loan EMI may fall this year! Most of the people paying home loan have been troubled by the increase in their EMI in the last two and a half to three years. The reason is that the Reserve Bank of India (RBI) increased the repo rate i.e. policy interest rates by 2.5% between May 2022 and February 2023 to control inflation. During the last few years, when the inflation rate came under control, it was expected that RBI would probably start cutting the repo rate. But the Reserve Bank has dashed these hopes by not doing so in the latest review of monetary policy. In such a situation, the question arising in the minds of people paying home loan is when will their EMI reduce? How much longer will they have to wait for this? The good thing is that despite the repo rate not being cut, the possibility of your home loan interest rates and EMI decreasing during this calendar year has not ended. Let us know what is the reason for this.
RBI had continuously increased the interest rates due to increasing inflation not only in India but all over the world. But now the situation has changed and the inflation rate is within the upper limit of 6% of the inflation tolerance zone of RBI. In December 2023, the retail inflation rate based on Consumer Price Index (CPI) was 5.7%. If prices remain under control, the Reserve Bank may consider reducing interest rates in the coming days. There is a strong possibility that this may be done after the Lok Sabha elections, because the government will not want to take any risk of increasing prices before the elections.
In terms of core inflation, the situation is even better than retail inflation. Core inflation came down to 3.9% in December 2023, which is the lowest level in two years. Experts believe that the retail inflation rate will also be in the range of 5 to 5.2% during the March quarter, whereas for the entire financial year 2023-24, it may remain around 5.4%. At the same time, it is also expected to remain in the range of 4.5% during the financial year 2024-25. In this situation, the Reserve Bank's stance may change during the second quarter of the financial year 2024-25 and it may start a cycle of cutting interest rates.
In the interim budget presented on 1 February 2024, the government expressed confidence of limiting the fiscal deficit to 5.8% during the current financial year. The target, though, was 5.9%. Similarly, the government has set a target of further reducing the fiscal deficit to 5.1% for the next financial year (2024-25). For this, the government has kept non-capital expenditure under control. Due to low fiscal deficit and non-capital expenditure of the government, the possibility of prices remaining under control will increase. Due to which RBI will have a great opportunity to reduce interest rates.
In the current situation, there are every reason to believe that interest rates are at their highest level (peak). Therefore, there are full chances of the reversal of the interest rate cycle going forward. This change can be seen from the second half of the current year. Some experts are even expecting a reversal of the rate cycle in the next meeting of the Monetary Policy Committee (MPC) of RBI to be held in April 2024. Even if that does not happen, there are full chances of it happening by the second quarter of the next financial year.
If you have taken a home loan of Rs 50 lakh for 20 years and the interest rate on it reduces from 8.50% to 8%, then with this decline of 0.5% you can save Rs 3.83 lakh. This will provide much-needed relief to old home loan borrowers, who have been troubled by the increase in their EMIs in the last 3 years.
