RBI Repo Rate | RBI keeps repo rate unchanged for 5th time: what it means for home borrowers, auto loan borrowers, FD investors
New Delhi: On Wednesday April 7, 2021, the Reserve Bank of India decided to keep policy rates – rates for pensions and reverse repurchase agreements – at 4% and 3.35% respectively for the fifth time in a row, given the recent surge in Covid business, which created significant uncertainty.
With the repo rate remaining at the lowest level of the past two decades, this bodes well for borrowers, but for savers it is certainly not good news.
Here’s How RBI’s Decision Will Affect FD Borrowers and Investors
1) House linked to pension, auto loans: With the RBI having decided to keep the repo rate unchanged, mortgage and auto loan rates tied to the repo rate will likely remain unchanged unless the bank decides to increase or decrease its risk premium or margin on the loan. The loan EMIs of these borrowers are therefore likely to remain the same.
It should be mentioned here that the State Bank of India, the largest lender in the country, from April 1 ended the special concessions offered on home loans during the holiday season. As a result, the original interest rates from 6.95% were restored on home loans.
2) House linked to MCLR, auto loans: MCLR is decided by individual banks based on its internal cost of funds. As the cost of a bank’s fund changes, banks increase or decrease their MCLR rate. So even though the RBI has maintained the status quo on the repo rate, banks can change their MCLR. It should be mentioned here that while most public sector banks passed the rate cut fully on to borrowers, private lenders have been slow to fully benefit from the 115 basis point repo rate cut announced by the RBI since. March 2020 in their MCLR rates. . Banks’ MCLR rates could therefore fall in the near future despite the absence of repo cuts.
It should be noted that even if a bank reduces its MCLR immediately, borrowers with loans linked to MCLR may not benefit immediately because the rates linked to MCLR are reset by lenders every 12 months or every 6 months. So there are EMI reduction possibilities for borrowers with MCLR related loans.
3) Fixed deposit rate: As the RBI has kept the repo rate unchanged, there may be no further reduction in FD rates through tenures by banks. But some banks may change the specific tenure FD rates depending on demand and supply. Analysts say that with FD rates already at an all-time low, there may be no further reduction in FD rates, as real rates have turned negative amid high inflation. On the contrary, some lenders may increase the rates of their FDs. Earlier in January, the SBI hiked the FD interest rate with a mandate of more than a year but less than two years. Other banks could raise FD rates as well, as bond yields recently climbed due to the government’s massive borrowing program for the current fiscal year.