No rate cut from RBI; here’s what this means for your EMI
As there is no rate cut this means that your equated monthly instalments (EMIs) on your car loan, home loan, or personal loans are unlikely to come down.
Reserve Bank of India (RBI) has decided to keep the repo rate, or the base rate at which banks can lend money, unchanged at 6.5%.
What this essentially means is that your equated monthly instalments (EMIs) on your car loan, home loan, or personal loans are unlikely to come down.
The cash reserve ratio (CRR) has also been kept unchanged at 4%.
However, banks have been slow in passing on the interest rate benefit to customers for the past one and a half years.
RBI started the rate cut process in January last year when the repo rate was 8.75%. Today, the rate stands at 6.5%.
However, banks’ prime lending rate was at around 10% in January last year and has only come down to 9.7% since then.
Rajan has repeatedly mentioned about the ‘transmission’ problem highlighting the failure of banks to pass on the rate cut benefits.
Banks, on the other hand, have maintained tight cash availability as high deposit rates as a reason for not following up RBI’s rate cuts.
Since then, deposit rates too, have started to come down.
However, the impact on your EMIs has been marginal.
This is the reason why this monetary policy has been a non-event. As even though the central bank revises rates, banks do not pass on the full-benefit to end consumers resulting in expensive loans.
Whether Rajan cuts rate or not in the policy meet on Tuesday, people at this point are more interested to know whether he will get an extension for second-term which ends on September 2016.