A cut in the repo rate – big news for corporate, but are you also wondering how will it affect you and me? The following explains what the change in the repo rate means to you.
Impacts of change in the repo rate:
1. It will infuse liquidity in the market, consequences of which are:
a) A reduction in the repo rate will help banks to borrow at lower rates. This in turn will affect the customers of the respective bank, and they might consider lending money (give loans) at a lower rate of interest. So the next time you want to avail a personal or an auto loan it might end up easier than the last time you decided.
b) While above is good news for new borrowers, the old borrowers will also be able to avail the benefits as the floating interest rates would likely decrease. If you have availed a home loan on floating interest rate, get the benefits by either reducing the EMI or tenure.
2. The prepayment charges abolished. The effect is such that RBI has barred all the banks to charge penalty on prepayment of home loans.
3. The fixed deposit rates. FD is one financial term that 90% of the people are aware of, and the interest rates are also affected by the decrease in the repo rate. The interest rates on short-term fixed deposits might go up rapidly. The deposit growth lags the credit growth which means banks need sufficient deposit to meet the supply of credit and hence banks won’t rush up to cut the deposit rates.
4. Real Estate and Infrastructure sector. With reduce in loan interest rate, customers will come forward and invest in these areas and eventually lead to increasing their volumes.