BHUBANESWAR: It’s difficult to gauge the central bank’s approach on policy rates. Equally challenging is to speculate if and when banks will transmit those rate cuts to consumers. If interest rates are lowered, it is good for borrowers, but bad for savers.In a surprise move, the Monetary Policy Committee (MPC) of Reserve Bank of India (RBI) on Friday retained its policy interest rate at 6.5 per cent.
Reasoning the status-quo decision, Patel said, “Please recall that we had two rate hikes in the space of two months (June 7 and August 2) and today’s stance of calibrated tightening essentially means that in this rate cycle, rate cut is off the table and we are not bound to increase rates at every meeting because that is not required given our inflation outlook and forecast at this point of time.”
FOR NEW BORROWERS
Be it a home loan, education loan or auto loan, consider taking a floating rate because a) these rates are usually lower than the fixed rates b) floating rates might come down after a certain period of time due to its fluctuating nature.
The first time borrowers of home loan can take advantage of the Pradhan Mantri Awas Yojana (PMAY) offered by the government under the flagship scheme of “Housing for All”. The amount of subsidy benefit that you are eligible to avail is linked to your income group.
FOR EXISTING BORROWERS
If your loans are linked to MCLR (The marginal cost of funds-based lending rate), this means that your equated monthly installments (EMIs) may not come down anytime soon. Even if you do not feel the impact immediately, your interest burden will mount as the tenure increases. Under the MCLR regime, when the next reset date of the loan arrives, your future EMIs will be calculated based on the interest rate applicable on that date. Borrowers should increase the EMI and insist on tenure reduction. Or, you can compare the existing interest rates with those offered by other lenders and explore the potential savings on transferring your existing loan.
Naveen Kukreja, CEO & co-founder, paisabazaar.com, says that besides RBI’s policy rates, banks consider their cost of funds, tenor premium and operating cost while setting lending rates. For example, many banks had already started increasing their MCLR due to rising cost of deposits even when RBI maintained status quo on its policy rates.
However, the status quo on policy rates may not impact lending rates of non-banking financial companies (NBFCs), including housing finance companies that mostly rely on the market to raise their funds. “NBFCs will continue to witness rising borrowing costs as debt market investors are asking for a higher risk premium due to rising fear of defaults. Some of it would be transmitted to borrowers, both existing and new, in the form of increased lending rates,” Kukreja added.
FOR DEPOSITORS
It’s time for depositors to cheer. When policy rates are raised, your interest on loans shoots up, but the interest you earn on humble deposits enjoys its own sweet time. One can guess that the rates will only move vertically from here, given the monetary policy’s neutral stance.