RBI Monetary Policy 2016 Effects on Loans Interest Rates

Today, 4th October 2016, RBI cuts down repo rate which is a good news for Indians. Now new repo rate is 6.25% than previous 6.5 per cent. This is RBI Governor Dr. Urjit Patel’s first monetary policy and for the very first time there was a committee for deciding policy.

Monetary Policy Committee (MPC) held a policy meeting today at 2:30 pm and all members agreed to decrease repo rate by 25 basis point.

The six members of MPC headed by Urjit Patel reduced repo rate and the short term rate at which Central Bank lends to banks and reduce it to 6.25%. And also MPC reduced reverse repo rate by 25 basis point. Now new reverse repo rate is 5.75 per cent.

Accordingly, the reverse repo rate has also reduced by similar percentage points to 5.75%.


RBI Monetary Policy October 2016 Effects and Reviews:

Home loans and other loans which are having flexible interest rates are linked to Bank’s marginal cost of funds based lending rate (MCLR). But it should be after 1st April 2016. Banks may start announcing cut in lending rate soon.

Currently MCLR in banks are almost 9 to 9.5 per cent. So there will be direct impact on lower MCLR’s of the banks.

For home loans, there may be not much reduction. But if the rate keeps falling over time and banks continue to pass on benefits, there will be huge impact. There is a large amount of savings in the interest outgo over the long-term.

Home loan borrowers stand to rise as and when banks reduce their rate. If Banks reduces home loan rate by 0.25 per cent, then on 9.50 per cent interest of Rs 40 lakh for 15 years, there will be Rs 1 lakh reduction.

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