As the Reserve Bank of India (RBI) has paused repo rate hike for several months, the biggest question on every home loan borrower’s mind is when will it start reducing the key lending rate. Will Repo Rate cut happen in 2024?
No, it won’t happen at least till the first six months of calendar year 2024, according to SBI Research.
In its latest edition of ‘Ecowrap’ report, SBI Research says the first rate cut will happen by Q2FY25 i.e. by July-September months of calendar year 2024.
“Based on alternate scenarios, our ANN model reveals that there is no reason for RBI to cut rates from 6.5%. We continue to maintain that the first rate cut will happen by Q2FY25,” SBI Research said.
It maintains that RBI may keep the repo rate unchanged at 6.5% till the next cut.
Inflation is down!
The retail inflation in India eased to three-month low of 5.10% in January 2024, compared to 5.69% in December. This is due to the decline in food inflation, which has declined to 7.58%. While, prices of intoxicants, clothing and footwear has declined marginally to 3.28% and 3.37% respectively.
“While headline retail inflation cooled in January, it has now spent 52 consecutive months above the RBI medium-term target of 4%. On a positive side, inflation has now been within the tolerance range of 2%-6% for the fifth month in a row,” SBI Research says.
According to the report, CPI inflation is expected to remain slightly above 5.0% in the remaining two months of this fiscal leading to an average inflation of 5.4% in FY24.
“Inflation is then expected to decline till Jul’24 (close to 3% in July’24) but increase thereafter to reach a peak of 5.4% in Sep’24, followed by a deceleration. For FY25, CPI inflation is likely to average to 4.6%,” it says.
Why Repo Rate cut matters
Repo Rate cut can positively impact home loan borrowers. When RBI cuts the repo rate, the repo-rate linked home loan rates also go down. Thus reducing monthly EMIs or loan tenors. This is why home loan borrowers are eagerly awaiting a rate cut.
