The era of low borrowing costs appears to be drawing to a close for home loan consumers. When the central bank revised the benchmark repo rate on October 7 after a gap of roughly three and a half years, many market participants perceived the move as an isolated adjustment. However, an analysis by SBI Capital Markets indicates that the recent hike marks only the opening phase of a broader monetary tightening path, pointing toward further interest rate increases in the period ahead.
Policy Rate Tightening Projected Across Future Quarters
According to projections shared by SBI Capital Markets, the Reserve Bank of India could raise the repo rate by an additional 0.75 percent to 1 percent over subsequent quarters. This upward trajectory is expected to continue well into the following financial year. Should this forecast materialize, home loan interest rates currently pegged around 8 percent could climb to 9 percent, directly raising the financial burden on borrowers through elevated equated monthly installments.
Retail Inflation Pressures Drive Tougher Monetary Stance
The central bank is relying on higher borrowing costs primarily to rein in persistent retail inflation. During the previous Monetary Policy Committee meeting, the central bank implemented a 0.25 percent increase in the benchmark repo rate while officially shifting toward a stricter policy stance. Given the lingering inflationary pressures across the economy, projections indicate that rate setters may enact another rate hike as early as the start of financial year 2028.
