Reserve Bank of India’s Monetary Policy Committee (MPC) in its December 2020 bi-monthly policy review has kept the key policy rates like Repo rate and reverse repo rate unchanged citing the retail inflation which is still above the comfortable level of 4%. These key policy chages affects your home loan or car loan or even your bank FD rates. Read on!
RBI estimates that the inflation will be around 6.8% during Q3 of FY21 and will subsequently come down to 5.8% during the Q4 FY21. It is pertinent to recall that the retail inflation has touched a high of 7.6% during October 2020. RBI has reduced repo rate by 115 base points (100 base points = 1%) since March 2020 to pump in more liquidity. Repo rate, which is the rate at which the RBI lends money to the banks stands currently at 4%. The Reverse Repo rate which is the interest rate offered by the RBI over funds borrowed from the banks is currently at 3.35%.
RBI further modified its forecasts for the GDP contraction for the FY 21 to 7.5% against 9.5% predicted earlier.
What does the RBI Monetary Policy Review for December 2020 mean for a common man?
- The EMIs for home loans may not get further cheaper, though likely to remain at lower levels.
- Unchanged repo rate is good news for those having Fixed Deposits as the FD rates are already at their record lower levels. Most banks are offering FD rates around 4.9% to 5.5%. These are strange levels as the Saving Bank interest rates offered by some banks are higher than their FD interest rates!
- New homebuyers can proceed with buying new houses as they can bargain and get lower interest rates for their home loans.
- New contactless payment rules means that a contactless cardholder can now make payments up to Rs. 5,000/- without needing to enter PIN etc. Earlier this limit was Rs. 2,000/-.
- Wire transfers through RTGS have been made 24×7 much like the NEFT transfers which were made 24×7 in December 2019. RTGS is used for wire transfers in excess of Rs.2,00,0000/-.