reserve Bank of India(RBI)’s six-member Monetary Policy Committee (MPC) has not made any change in the repo rate, RBI Governor shaktikanta maid Announced on Thursday, February 10. With the Reserve Bank of India maintaining status quo on key policy rates like repo and reverse repo for the tenth time in a row, borrowers will continue to pay lower rates on their home, car loans. However, depositors have not got immediate relief from one of the lowest interest rates on fixed deposits as their wait has become a bit longer. reserve Bank of India In its bi-monthly monetary policy review, it kept the repo rate and reverse repo rate unchanged at 4 per cent and 3.35 per cent, respectively. The policy rates were last changed in May 2020. Here’s what the RBI’s status quo means for existing borrowers and new borrowers.
Repo-Linked Home, Auto Loan
As RBI decides to keep repo rate unchanged, rates on repo-rate linked home, auto loans are unlikely to rise anytime soon, unless banks decide to increase or decrease their risk premium or margin on loans does. Hence the loan EMIs of these borrowers are likely to remain the same.
Those who are planning to take a fresh loan should take advantage of this opportunity at the earliest as many banks are offering discounts on interest rates and processing fees. Home loan interest rates now start from 6.50 per cent while car loans can be started from 7.20 per cent. New borrowers should lock in the current lower rates as rising inflation may force the RBI to change its decision on key rates in the upcoming policy review meeting.
Anuj Puri, Chairman – ANAROCK Group, said: The window of opportunity for homebuyers to take advantage of lower interest rates has been extended for some more time, but it is not likely to continue for much longer – sooner or later In the U.S., the repo rates will increase. Overall, this bold and progressive stance of RBI affects the real-time ground reality and is contrary to industry expectations that the repo rates will be hiked.”
What should old borrowers do?
For borrowers who have home, car loans linked to BPLR, Base Rate, MCLR, there can be no change in their loan EMI. Experts say that if your loan is more than 5 years old, it is prudent to take it to a new lender that offers a lower rate than your existing lender. RBI made it mandatory to link all floating rate retail loans from banks to an external benchmark such as the repo rate with effect from October 1, 2019.
Hence, converting your old home loan to repo-linked rates can fetch you rates as low as more than 1 per cent. The point to note here is that one should switch one’s loan only if the rate difference is more than 50 basis points and the switching costs (such as processing fees and charges for new loans) are not too high. The net benefit of switching should look attractive. You can also talk to your existing lender to convert your home loan from the old regime to the new repo-linked rates. It makes sense to switch it if your lender agrees to do so for a minimal fee.
Short term deposit rates may see above
Whenever the interest rate cycle makes a downward U-turn, it is usually the short to medium term interest rates that are likely to rise first. As far as long-term interest rates are concerned, it will take a little longer for these rates to rise significantly.
fixed deposit rates
As RBI has kept the repo rate unchanged, there cannot be further reduction in FD rates by banks. But some banks may change the rates on FDs of specific tenors depending on the demand and supply. Analysts say that since FD rates are already at historic lows, there may not be any further reduction in FD rates, as real rates have turned negative amid high inflation.
So, if you are planning to book an FD now or renew your existing FD, it is better to go for a smaller fixed deposit of one year or less, so that your deposit is at a lower rate. Don’t be locked Tall. You can start increasing the tenure of the FD as per your choice, whenever the short to mid-term rates increase.
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