How will RBI’s decision affect your EMI and FD returns?

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The market was hopeful that RBI would not change policy rates. The reason for this was that in October, the rate of retail inflation rose to 7.61 percent. This was the highest level since May 2014.




The Reserve Bank of India (RBI) did not change policy rates for the third consecutive time on Friday. He has kept his stance soft. Even in October, the RBI kept the policy rates unchanged. In March and May 2020, the repo rate was cut twice in a row. After this announcement by the Reserve Bank, the repo rate remains at 4 percent and the reverse repo rate at 3.35 percent.

The market was hopeful that RBI would not change policy rates. The reason for this was that in October, the rate of retail inflation rose to 7.61 percent. This was the highest level since May 2014.

Let us see here how the interest rate cuts affect the investors of new, existing and fixed deposits.

Good interest is getting here on FD, there will be a big profit on the maturity of this time

The decision to keep the interest rates unchanged is good news for the investors of Fixed Deposit (FD). Banks will avoid reducing the FD rates. This step of RBI for those taking loans from banks means that banks will also stop cutting interest rates on loans for the present. Those who invest in

low
fixed deposits (FDs), especially senior citizens, can get relief from fixed income . The decision to keep the repo rate unchanged will prevent banks from cutting FD rates. Following the RBI’s decision to cut the repo rate in March and May, the major banks had reduced the interest rates on fixed deposits.

Apart from small savings schemes, senior citizens can choose even more options. The Pradhan Mantri Vay Vandana Yojana and Senior Citizens Savings Scheme are currently offering 7% interest.



The RBI has recently launched floating rate bonds. They are getting 7.15 percent interest. It is to be noted here that the interest rate on these bonds will change every six months. The change date for this will be January 1, 2021.

Existing customers
1. If the loan is linked to the external benchmark

as the repo rate has not been cut. Therefore, the EMI of the customers whose loan is linked to the external benchmark (repo rate, treasury bill) will continue as before. Factors that can affect your EMI are margin and risk premium. These banks charge beyond the benchmark rate.

2. If the loan is linked to MCLR

For customers whose loan is linked to the marginal cost of funds based lending rate ie MCLR, EMI can remain the same as before. However, banks can still reduce the MCLR. This can be done by looking at the internal things. The reason is that MCLR does not depend only on external factors like rate cut. It also has an impact on the internal factors of the bank.

3. If the loan is linked to BPLR,

The customers whose loans are still linked to Base Rate or Benchmark Prime Lending Rate (BPLR), should consider switching their home loan to the new​ system. The reason is that there is more transparency in the new system. In these, the effect of reduction in policy rate is immediately visible.

New Customer

the customers whose loans are still linked to Base Rate or Benchmark Prime Lending Rate (BPLR), should consider switching their home loan to the new

system. The reason is that there is more transparency in the new system. In these, the effect of reduction in policy rate is immediately visible.

New Customer

Even though there is no change in the policy rate. But, this is the right time for new customers to take a loan. It is important to look at the margin associated with the external benchmark, how much the banks are charging margin above the external benchmark and the risk premium. Those who are eligible for Pradhan Mantri Awas Yojana can also consider taking a loan. The scheme provides interest subsidy on loans.

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