The Reserve Bank of India today decided to keep key policy rates- repo and reverse repo rate- unchanged at 4% and 3.35% respectively in its monetary policy review keeping in view elevated inflation level. The apex bank believes that inflation is going to remain elevated throughout the remaining part of the current financial year. So analysts say any further rate cut in the current financial year is ruled out.
Here is how RBI’s decision will affect borrowers and FD investors
(1) Repo-linked home, auto loans
- As the RBI decided to keep repo rate unchanged, rates on home, auto loans linked to repo-rate are likely to remain unchanged unless the bank decides to increase or decrease its risk premium or margin on the loan. So loan EMIs of these borrowers are likely to remain the same.
- Worth mentioning here is that Since March this year, the central bank has reduced repo rate by 115 basis points due to which home loan rates of more than 10 banks have fallen below the 7% mark to a record low.
- If you are planning to take a fresh loan then it is the right time to do that as interest rates are at all-time low.
(2) MCLR-linked home, auto loans
- MCLR is decided by individual banks based on its internal cost of fund. As and when there is a change in a bank’s cost of fund, banks either increase or decrease their MCLR rate. So even if the RBI maintained status quo on repo rate, banks may change their MCLR.
- Also, worth mentioning here is that most of the banks are yet to pass on the full benefit of 115 basis points repo rate cut announced by the RBI since March this year in their MCLR rates. So MCLR rates of banks may come down in the near future despite no reduction in repo.
- It may be noted that even if a bank reduces its MCLR immediately, borrowers having MCLR-linked loans may not get the benefit immediately as MCLR-linked rates are reset by lenders in every 12 months or in every 6 months. So there are possibilities of reduction in EMI for borrowers having MCLR-linked loans.
(3) Fixed deposit rates
- As the RBI kept repo rate unchanged, there may not be further reduction in FD rates across the tenures by banks.
- But some banks may alter rates on FDs of specific tenure based on demand and supply.
- Analyts say as FD rates are already at a historical low there may not be any further reduction in FD rates, given that real rates have become negative amid high inflation. Public sector lender Canara Bank increased term deposit rates on some specific tenures by up to 20 basis points earlier this month.