What’s Happening?
Now that the pandemic is over, why is RBI still not increasing the repo rate? Repo rate is the rate at which RBI lends money to the banks in the short term. It has been more than 20 months since the repo rate was reduced to 4% on May 22, 2020, which is the lowest since 2001.
The central bank is balancing economic growth and inflation. If the repo rate increases, the inflation will rise too. Consumer Price Index (CPI) inflation in December came in at 5.6%, which RBI wants to bring down this year. RBI Governor Shaktikanta Das said, “Inflation to peak in the current quarter with tolerance band, moderating in the second half of the next fiscal”. Continuous policy support by the RBI and steady economic growth will soothe the inflation heat in the country.
How Does This Affect People?
With no change in the policy rates, there will be no immediate action on the EMI of home loans and personal loans. However, depositors will continue to reap low-interest rates on bank fixed deposits. It’s better to go for a short term fixed deposit, say one year or lower since you won’t receive high interest on it.
Those looking to take a home loan or personal loan can take advantage of RBI’s pause right now. As economic growth revives, there are high chances of RBI increasing the policy rate, which will push banks to increase their interest rates. As long as this low-interest rate regime remains, make use of it. So far, no change in repo rate means the same EMI for existing home loan borrowers.
What Lies Ahead?
As people start buying more homes with the help of bank loans, the economy will catch momentum, which is all that RBI wants. Meanwhile, as soon as inflation is slightly under control, the RBI will consider hiking the policy rates. Those who are planning to take fresh loans should make use of this opportunity.
