New Delhi: In a first in past five years, the Reserve Bank of India’s (RBI) six-member Monetary Policy Committee (MPC) on Friday cut the repo rate — the rate at which the RBI lends to other banks — by 25 basis points to 6.25 per cent. The last cut was done in May 2020. But how will the rate cut benefit common man? Lowering of the repo rate will make borrowing cheaper.
Floating Interest Rates: Banks will pass on the rate cut benefit to those existing borrowers who took loans or have converted the loans under the repo rate-linked floating interest rate system. This system allows EMIs to adjust as per the RBI’s repo rate. As the RBI cuts interest rates, these rates also are reduced.
Fixed Interest Rate system: Those who took home loan, personal loan and auto loan under the fixed interest rate system will have to depend on their respective banks. “It depends upon the banks as to how much they will pass on. But, most loans have already been converted to the repo rate regime. There are very few loans that are based on old benchmark (fixed regime),” HDFC Life Insurance’s Keki Mistry said told ET.
New Borrowers: The interest rates will be lower on loans availed by new borrowers after few weeks.
Let’s take a look at an example as to how your existing home loan under floating interest rate system may change. Say you have a home loan of Rs 50 lakh at an interest rate of 8.5% for a tenure of 20 years. Due to RBI’s 25 basis points rate cut, your interest rate would drop to 8.25%. Here’s how your EMI changes:
- Old EMI (at 8.5%): Rs 43,059 (approx.)
- New EMI (at 8.25%): Rs 42,452 (approx.)
GDP projection: The central bank estimates GDP growth in next fiscal year at about 6.7%, Governor Sanjay Malhotra announced.
