Image Source : PIXABAY Home, auto and other loans are likely to see a drop in interest rates.
FD Rates after RBI repo rate cut: Reserve Bank of India Governor Sanjay Malhotra today announced a cut in the key benchmark rate. The Monetary Policy Committee (MPC), headed by Malhotra, has slashed the repo rate by 25 basis points to 6.25 per cent. This is the first cut in almost five years. This was the first reduction since May 2020 and the first revision after two-and-a-half years. This was the first MPC meeting of Sanjay Malhotra, who was appointed RBI Governor on 11 December last year.
The last cut by the RBI interest rates was in May 2020. At that time, the RBI had cut the repo rate by 0.40 per cent (40 basis points) to boost the country’s economy during Covid.
Loans are likely to see a drop in interest rates
Home, auto and other loans are likely to see a drop in interest rates after the Reserve Bank of India under a new Governor cut the key benchmark rate.
The repo rate (repurchase rate) is the interest rate at which the central bank lends money to commercial banks when there is a shortage of funds.
When the repo rate is high, borrowing costs for banks increase, which is often passed on to consumers in the form of higher interest rates on loans. Conversely, a lower repo rate usually results in lower interest rates on loans such as home loans, car loans, and personal loans.
Is repo rate cut bad news for some people?
While most people are happy that their EMIs for loans will go down, it might be not so great news for others as the 25 basis points reduction could also lead to a drop in fixed deposit (FD) interest rates. This will directly impact those who invest mainly in FDs – like senior citizens.
What these people can do now?
Those who have been traditionally investing in fixed deposits need to rethink now. However, those who are still willing to invest in FDs should do so soon to secure existing rates.
Also, they can opt for ladder FDs. This is a process where investors split their investments in multiple FDs with different tenures. This can help manage the impact of a fall in rates of fixed deposits.
