The Reserve Bank of India (RBI) kept its key interest rate unchanged at 5.25% on Wednesday. Announcing the decision, Governor Sanjay Malhotra said that the Monetary Policy Committee (MPC) took the decision unanimously to keep the repo rate unchanged as there are no clear signs of broad-based price pressures yet.
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The six-member MPC also continued with its 'neutral' policy stance. The decision comes as policymakers assessed inflation risks linked to higher global energy prices. Renewed tensions in the Middle East have led to disruptions around the Strait of Hormuz, a key shipping route for global oil flow.
The central bank's decision influences borrowing costs, loan EMIs and deposit returns with change in the benchmark repo rate.
A repo rate cut can reduce EMIs and make loans cheaper, while a hike increases borrowing costs and may extend repayment periods. As a result, people need to be aware of such decisions to ensure they plan their budget and investments accordingly.
Impact On Loan And EMIs:
Fixed-rate loans: Home and car loans with fixed interest rates are not affected by changes in the RBI's policy rate.
Floating-rate loans: Home and car loans linked to floating interest rates are directly impacted by RBI's repo rate decisions, which can affect EMIs and repayment costs. With the RBI keeping rates unchanged, banks are unlikely to make any immediate changes to lending rates or EMIs.
Impact On Fixed Deposits:
RBI's interest rate decisions also influence fixed deposit (FD) returns offered by banks. When the central bank raises rates, banks may increase FD interest rates to attract deposits. With the RBI keeping the repo rate unchanged, deposit rates are unlikely to see any immediate major changes.
Investors must note that any changes to FD rates apply to new deposits made after the revised rates come into effect. Existing fixed deposit holders continue to earn interest at the rate agreed upon at the time of investment.
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