Best printers for Home

Best Mixer Grinder

Best wired Earphones

Best 43 Inch TV in India

Best Wi Fi Routers

Best Home Theatre in India

Smart Watch under 5000

Best Laptops for Education

Best Laptop for Students

Earlier today, RBIs MPC (Monetary Policy Committee) decided to leave the <keyword id="20094323" type="General" weightage="100" keywordseo="repo-rate" source="keywords">repo rate</keyword> unchanged at 6.5%, while changing the policy stance toward neutral. The aim, as <keyword id="19899808" type="General" weightage="20" keywordseo="RBI" source="keywords" meta.keywordsubtype="org" meta.entityname="RBI" meta.hostid="261" meta.entityid="RBI">RBI</keyword> maintained, was to strike a balance between taming domestic <keyword id="19895000" type="General" weightage="20" keywordseo="inflation" source="keywords">inflation</keyword> and maintaining target growth. A neutral stance gives the RBI the flexibility to adjust <keyword id="19950650" type="General" weightage="20" keywordseo="interest-rates" source="keywords">interest rates</keyword> based on the direction of inflation, as opposed to its previous stand of withdrawing accommodation, which eliminates any possibility of rate cuts. While a change of stance doesn’t necessarily mean a cut should follow, most experts view this as a prelude to a possible rate cut in December this year, or even February next year. Says Deepak Ramaraju, Senior Fund Manager, Shriram AMC, "The RBI stance has changed to neutral, indicating that its primary focus is to balance growth and inflation. Growth has been resilient and given the short-term pressure on inflation, RBI may continue to hold interest rates unchanged in Q3 FY 2025. Based on inflation moderating below 4.5% and course of geo-political concerns, the RBI may undertake a rate cut decision in Q4 FY 2025". So, what does this mean for your investments? How will this decision impact your existing funds? We take a look. <h2>Good time to invest in high-yield deposits</h2>This is a good time to invest in high-yield <keyword id="19975805" type="General" weightage="20" keywordseo="fixed-deposits" source="keywords">fixed deposits</keyword> and long-term bonds. That's because with rate cuts imminent in the upcoming quarters, you'd be able to lock-in your funds with the prevailing, relatively higher interest rate right now. As for the yellow metal or gold, it is generally considered a safe haven asset during turbulent market times. That's why you should consider making it a part of your investments, or increasing its weightage in your overall portfolio, depending on your needs. Vijay Kuppa, CEO, InCred Money highlights that with deposit rates at elevated levels, one has an ideal opportunity for locking in high-yield fixed deposits."At the same time, high borrowing costs also make a compelling case for increasing debt allocations in investment portfolios, which offer a buffer against potential equity market corrections, which might occur due to <keyword id="19955176" type="General" weightage="20" keywordseo="geopolitical-tensions" source="keywords">geopolitical tensions</keyword>", he continues. With the chronic crisis in Middle-East flaring up again, as Israel looks to target Lebanon and Iran, you can expect some volatility and downturns in the <keyword id="19949641" type="General" weightage="20" keywordseo="equity-markets" source="keywords">equity markets</keyword>, both in India and globally, in the times to come. Over the last 5 days, Sensex has dipped by over 1,900 points, or about 2.38%, and Nifty has also gone down by 2.23%. With this set to continue for some time, you can reconsider and evaluate your investments in debt. Mahendra Kumar Jajoo, CIO – Fixed Income, Mirae Asset Investment Managers (India) explains that the market is confident of a rate cut in the times to come, and that the <keyword id="20066775" type="General" weightage="20" keywordseo="bond-market" source="keywords">bond market</keyword> has already started pricing in the same. "We have already seen some of this already, with 10Y GOI yields at around 6.75%, having already eased significantly in last few months. So, if investors wait for rate cut to invest, it may be too late for them. Also, with corporate credit picking up, investing in corporate bond funds for a period of 3-5 years can also serve the investor well. Investors having a long term investment horizon and appropriate risk appetite can also invest in gilt funds", he continues. <h2>Dont exit the markets yet </h2>Though short-term biases of FII may continue towards Chinese markets keeping pressure on the equity markets, the resilient domestic flows can defy deep corrections in the equity markets despite high valuations. The markets may trend positive with subsequent rate cuts by the US Fed later this year. Hence, it wont be advisable to completely exit the equity markets during these times, notes Avnish Jain, Head - Fixed Income, Canara Robeco Mutual Fund Jain advises to take a buy on dips approach towards the stock markets i.e. adding quality stocks to your portfolio during times of market downturn. Shrikant Chouhan, Head Equity Research, Kotak Securities says that the current market texture is volatile, hence level based trading would be the ideal strategy for the day traders. "For the bulls now, 25,050/81,700 would be the key level to watch out. Above the same market could retest the level of 25,200-25,225/82,000-82,300. On the flip side, 24,900/81,200 would be the key support zone for the traders. Below the same, the selling pressure is likely to accelerate. Below the same, market could slip till 24,800-24,780/81,000-80,700", explains Chouhan. <h2>Time to buy a home? Maybe! </h2>No rate cut can spell some good news for homebuyers who are looking to get their hands on real estate during the festive season. Even as home loan rates remain steady as of now, homebuyers may have to wait until December or beyond to get any tangible relief in their home loan EMIs. Vimal Nadar, Head of Research, Colliers India explains that a change in stance from “withdrawal of accommodation” to “neutral” indicates its clear direction for a possible reduction in interest rates in the foreseeable future. This ongoing stability in repo rate should provide a significant thrust to residential real estate during these festive months as home loan interest rates are likely to remain steady. "Typically, Q4, marked by higher inclination of homebuyers to wrap-up property purchases during the auspicious period combined with instantaneous liquidity benefit aided by developers offering attractive discounts, has historically provided the final push to housing sales across the major markets in the country", he added.

RBI leaves repo rate unchanged. What does this mean for you?

The <keyword id="19899810" type="General" weightage="20" keywordseo="Reserve-Bank-of-India" source="keywords" meta.keywordsubtype="org" meta.entityname="Reserve Bank of India" meta.hostid="261" meta.entityid="Reserve Bank of India">Reserve Bank of India</keyword>'s (<keyword id="19899808" type="General" weightage="20" keywordseo="RBI" source="keywords">RBI</keyword>) <keyword id="19913109" type="General" weightage="20" keywordseo="Monetary-Policy-Committee" source="keywords">Monetary Policy Committee</keyword> (MPC) has decided to keep the <keyword id="20094323" type="General" weightage="100" keywordseo="repo-rate" source="keywords">repo rate</keyword> steady at 6.5%. This decision, announced by RBI Governor <keyword id="19913110" type="General" weightage="20" keywordseo="Shaktikanta-Das" source="keywords">Shaktikanta Das</keyword> early today, marks the ninth consecutive time the central bank has maintained the current rate, which was last adjusted in February 2023. The MPC's decision was made by a majority vote of 4:2, reflecting a cautious approach to balance economic growth and <keyword id="19895000" type="General" weightage="20" keywordseo="inflation" source="keywords">inflation</keyword> control. But what exactly is repo rate and how does it impact you? Read on as we explain. <h2>Understanding the Repo Rate</h2>The repo rate, or repurchase agreement rate, is a critical monetary policy tool used by the RBI. It is the rate at which the central bank lends money to commercial banks and financial institutions against government securities. By adjusting the repo rate, the RBI influences the money supply, which in turn affects inflation and economic activity. <h2>How does it impact you?</h2>Changes in the repo rate have significant implications for both borrowers and savers. When the repo rate increases, banks incur higher costs to borrow funds from the RBI. To maintain their profit margins, these institutions raise interest rates on loans, leading to higher borrowing costs for consumers. Conversely, a lower repo rate reduces borrowing costs, resulting in lower EMIs for various loans, including home, personal, and education loans. Fixed deposit interest rates are also influenced by the repo rate. An increase in the repo rate can lead banks to offer higher interest rates on fixed deposits to attract more funds, benefiting depositors. On the other hand, a decrease in the repo rate might result in lower <keyword id="20772297" type="General" weightage="20" keywordseo="fixed-deposit-rates" source="keywords">fixed deposit rates</keyword>, affecting returns for savers. <h2>Relationship between repo rate and inflation</h2>As the lender of last resort, the RBI provides short-term funds to commercial banks through the repo rate mechanism. By doing so, it influences the interest rates that banks offer to their customers. This ability to control the cost of borrowing is a powerful tool for the RBI to manage economic stability. In times of inflation, the RBI raises the repo rate to curb borrowing and encourage saving. Higher interest rates make loans more expensive, reducing consumer spending and slowing down inflation. Conversely, in a deflationary environment, the RBI lowers the repo rate to stimulate borrowing and spending, thereby boosting economic activity. For example, there's a very popular bakery that everyone loves in a fictional town. This bakery makes the best bread and pastries, and almost everyone in town buys their daily bread from there. During a period of low inflation, the central bank of the town (similar to the Reserve Bank of India) sets a low repo rate, meaning it's cheap for commercial banks to borrow money. As a result, banks borrow money at a low cost and are willing to lend more money to the residents at lower interest rates. The residents find it easy and cheap to get loans, so they have more money to spend. With more disposable income, people in the town buy more bread and pastries. The bakery sees a surge in demand. With everyone having more money to spend, the demand for bread and pastries increases rapidly. The bakery struggles to keep up with the demand and starts raising prices. As the prices of bread and other goods in the town go up, inflation starts to rise. The central bank notices that inflation is getting too high, making everyday goods more expensive for everyone. To control this inflation, the central bank decides to increase the repo rate. During a high inflation period, with the increased repo rate, it's more expensive for commercial banks to borrow money. Consequently, banks in the town start lending less money and at higher interest rates. The residents find it harder and more expensive to get loans, so they have less extra money to spend. With less disposable income, fewer people buy bread and pastries. The demand decreases. With lower demand, the bakery reduces its prices to attract more customers. As the prices of goods in the town start to stabilise or even decrease, inflation comes under control.

RBI keeps repo rate unchanged at 6.5%: What is repo rate and how it affects you

On September 18, 2024, the US <keyword id="19900043" type="General" weightage="20" keywordseo="fed" source="keywords">Fed</keyword> delivered a jumbo-sized surprise to the global economy. Not only did they trim their interest rates by a massive 50 basis points to bring their yields down to 5%, but also hinted at further rate cuts in the upcoming months. This move from the fed and several other central banks globally had pushed expectations high for a similar rate slash closer home, from the <keyword id="19899808" type="General" weightage="20" keywordseo="rbi" source="keywords">RBI</keyword> this month. But governor <keyword id="19913110" type="General" weightage="20" keywordseo="shaktikanta-das" source="keywords">Shaktikanta Das</keyword>, in a “picture abhi baaki hai” moment, decided to hold the repo rates here steady, leaving them unchanged at 6.5% for the record 10th straight time. Although, he did tinker with the policy stand, changing it from “rate cuts are absolutely off the table” to a more accommodating “we’re okay with bringing down the rates, if needed”. This, rather neutral, stance from India’s financial custodian sparked hopes for a rate cut in December this year. However, the stubborn inflation levels in September have again dented such hopes. As consumers, you may be wondering what all the hullabaloo this is about, since it hardly makes a difference to your regular financial routine. Well, the majority of both economic growth and inflation is closely connected to this policy stance from the central bank and it does have a rather indirect effect on both our earnings and spending. But more directly, it would have clear implications for those looking to own a house. Even the slightest modification of interest rates, or the lack of it, influences the <keyword id="19916018" type="General" weightage="20" keywordseo="emi" source="keywords">EMI</keyword> you pay significantly. So, all aspiring homebuyers, is this the right time to take out a loan and buy a house? Can you expect a rate cut anytime soon, and what will that mean for your home-owning dreams? We lay it out. <h2>What’s the connection?</h2>You see, buying a house is no small feat, at least financially. The task becomes even more herculean if you are scouting for your own roof in cities like Delhi, Noida, Bangalore or Mumbai where, as Circuit from Munnabhai says, “room shuru hote hi khatam ho jata hai”. Naturally, you’ll have to take a <keyword id="6354730" type="General" weightage="100" keywordseo="home-loan" source="Orion">home loan</keyword> from the bank. Don’t be mistaken, the bank won't give you a loan that covers 100% of the value of the property you want to own. Rather, your loan amount will be equivalent to a certain percentage of the property’s total value. RBI’s guidelines on this are pretty clear: <ul><li>If your loan amount is up to Rs 30 lakh, you can get a loan worth 90% of the property’s value.</li></ul><ul><li>If the loan amount is between Rs 30 lakh and Rs 75 lakh, you are eligible for a loan worth 80% of the property’s value.</li><li>If you are taking a loan of more than Rs 75 lakh, your loan amount will be equivalent to 70% of the property’s value.</li></ul>Now assuming that you have the money, it's all about paying back the principal amount, but not without a little (read hefty) interest added on top. See, when you’re taking a home loan, you are actually signing up for a long-term, even multi-decadal financial commitment, which will unfailingly present itself to your bank accounts and finances every single month, in the form of EMIs, or equated monthly instalments). When you take a home loan, you can choose to pay the interest in two ways (talk about choices!). One is that you decide to keep a fixed rate of interest throughout the tenure of your home loan. So, if you opt for a 25-year fixed-rate home loan at the rate of 8.8% p.a., you’ll have to pay interest at this rate for the next 25 years, till your entire loan is paid off. Yes, you can go backsies and switch to a floating-rate home loan by paying a fee. Floating, as the name suggests, means that your interest rate is not set in stone. But starting October 2019, when it comes to a floating interest rate home loan, your payable interest and EMIs are directly impacted by any changes in <keyword id="20094323" type="General" weightage="20" keywordseo="repo-rate" source="keywords">repo rate</keyword>, which were left unchanged by RBI this time around. Why are these two so chummy, you might ask. Well, home loan interest rates are a sum of two things: <ol><li>Repo Rate (the rate at which RBI lends money to banks)</li><li>Operational cost + margins</li></ol>Any plus or minus in this equation would send your home loan interests tanking, or skyrocketing. Vivek Iyer, Partner, Grant Thornton Bharat explains that any change in the repo rates impacts the cost of funds and thereby the home loan interest rates. “When the interest rates are expected to reduce, the corresponding impact will be in the form of a reduced EMI. Home loan borrowers should always try to borrow at a floating rate when interest rates are expected to reduce and at a fixed rate when the interest rates are expected to increase. This minimizes the outflow in the form of EMIs that the home loan borrowers will experience”, he continues. So, no change in repo rates means no change in your home loan interest payout and no financial relief whatsoever. A rate cut, which most experts are anticipating will start this December, would mean your EMI payments come down, and your wallet might save a little more. But there’s also a chance of an UNO reverse happening. In case RBI is in the mood to hike the interest, your home loan EMIs might end up taking more from your pockets. Consider this. You took a floating interest rate home loan worth Rs 50 lakh in January 2022 at 8% p.a., for a period of 20 years. This brings your total monthly EMI to Rs Rs 41,822. But, as luck would (or won't) have it, RBI raised the interest rate by 250 basis points between May 2022 and February 2023, bringing it to its current status of 6.5%. Some back-of-the-envelope calculations suggest that now, your home loan interest payout will also rise by a hefty 2.5%, taking the total to 10.5%. In other words, you’ll have to dish out Rs 49,919 per month as EMI. Now, won't you heave a sigh of relief if the RBI were to bring down the interest rate by say, even 50 basis points, or 0.5%? Agreed, your EMI will come down just marginally, to Rs 48,251. But look at this over a 20-year period, and you’ll see how big the difference is. <h2>Are rates set to change anytime soon?</h2>Generally, RBI hikes the repo rates if it sees inflation spiralling out of control. Then, in a bid to reduce consumer spending, it raises interest rates to make borrowing expensive. But when the apex bank sees sluggish consumption in the economy, inflation in control and wants to boost spending, it slashes down on interest rates, making it more lucrative for people to borrow. As of now, most experts are not anticipating any changes in the interest rates anytime soon. This means home loans are not getting cheaper anytime soon. The CPI data, which came out yesterday, saw inflation rise to 5.49% in September, compared to 3.65% last month. Food and beverage prices jumped to a four-month high of 8.36% in September, as opposed to a 5.3% rise in August. So a rate cut seems a no-go at the moment! Apurva Sheth, Head of Market Perspectives and Research, SAMCO Securities explains that the RBI had probably expected a hardening of inflation and that's why it chose to hold on to the rates in the monetary policy announcement last week. “Now, it seems that RBI will take a cautious stance going ahead and will not be in a hurry into rate cuts like its global peers”, he added. In all this, one thing is clear, in the grand movie of the Indian economy, the RBI has chosen stability over drama. And just like in every good Bollywood film, we're left wondering what twist the sequel will bring. Until then, it might be “The End" for rate cuts, but the show must go on for the Indian economy!

Boom or bust — how RBI’s decision to leave rates unchanged affects homebuyers

<div type="image" title="In case RBI is in the mood to hike the interest, your home loan EMIs might end up taking more from your pockets. Or, if it leaves the rates unchanged, your EMIs wont budge one bit" msid="114284206" hostid="261" caption="&amp;lt;p&amp;gt;In case RBI is in the mood to hike the interest, your home loan EMIs might end up taking more from your pockets. Or, if it leaves the rates unchanged, your EMIs wont budge one bit&amp;lt;/p&amp;gt;"></div> On September 18, 2024, the <keyword id="19951097" type="General" weightage="20" keywordseo="us-fed" source="keywords">US Fed</keyword> delivered a jumbo-sized surprise to the global economy. Not only did they trim their interest rates by a massive 50 basis points to bring their yields down to 5%, but also hinted at further rate cuts in the upcoming months. This move from the fed and several other central banks globally had pushed expectations high for a similar rate slash closer home, from the <keyword id="19899808" type="General" weightage="100" keywordseo="rbi" source="keywords">RBI</keyword> this month. But governor <keyword id="19913110" type="General" weightage="20" keywordseo="shaktikanta-das" source="keywords">Shaktikanta Das</keyword>, in a “picture abhi baaki hai” moment, decided to hold the repo rates here steady, leaving them unchanged at 6.5% for the record 10th straight time. Although, he did tinker with the policy stand, changing it from “rate cuts are absolutely off the table” to a more accommodating “we’re okay with bringing down the rates, if needed”. This, rather neutral, stance from India’s financial custodian sparked hopes for a rate cut in December this year. However, the stubborn <keyword id="22195" type="General" weightage="20" keywordseo="inflation" source="Orion">inflation</keyword> levels in September have again dented such hopes. As consumers, you may be wondering what all the hullabaloo this is about, since it hardly makes a difference to your regular financial routine. Well, the majority of both economic growth and inflation is closely connected to this policy stance from the central bank and it does have a rather indirect effect on both our earnings and spending. But more directly, it would have clear implications for those looking to own a house. Even the slightest modification of interest rates, or the lack of it, influences the <keyword id="19916018" type="General" weightage="20" keywordseo="emi" source="keywords">EMI</keyword> you pay significantly. So, all aspiring homebuyers, is this the right time to take out a loan and buy a house? Can you expect a rate cut anytime soon, and what will that mean for your home-owning dreams? We lay it out. <h2>What’s the connection?</h2>You see, buying a house is no small feat, at least financially. The task becomes even more herculean if you are scouting for your own roof in cities like Delhi, Noida, Bangalore or Mumbai where, as Circuit from Munnabhai says, “room shuru hote hi khatam ho jata hai”. Naturally, you’ll have to take a <keyword id="6354730" type="General" weightage="20" keywordseo="Home-loan" source="Orion">home loan</keyword> from the bank. Don’t be mistaken, the bank won't give you a loan that covers 100% of the value of the property you want to own. Rather, your loan amount will be equivalent to a certain percentage of the property’s total value. RBI’s guidelines on this are pretty clear: <ul><li>If your loan amount is up to Rs 30 lakh, you can get a loan worth 90% of the property’s value.</li></ul><ul><li>If the loan amount is between Rs 30 lakh and Rs 75 lakh, you are eligible for a loan worth 80% of the property’s value. </li><li>If you are taking a loan of more than Rs 75 lakh, your loan amount will be equivalent to 70% of the property’s value. </li></ul>Now assuming that you have the money, it's all about paying back the principal amount, but not without a little (read hefty) interest added on top. See, when you’re taking a home loan, you are actually signing up for a long-term, even multi-decadal financial commitment, which will unfailingly present itself to your bank accounts and finances every single month, in the form of EMIs, or equated monthly instalments). When you take a home loan, you can choose to pay the interest in two ways (talk about choices!). One is that you decide to keep a fixed rate of interest throughout the tenure of your home loan. So, if you opt for a 25-year fixed-rate home loan at the rate of 8.8% p.a., you’ll have to pay interest at this rate for the next 25 years, till your entire loan is paid off. Yes, you can go backsies and switch to a floating-rate home loan by paying a fee. Floating, as the name suggests, means that your interest rate is not set in stone. But starting October 2019, when it comes to a floating interest rate home loan, your payable interest and EMIs are directly impacted by any changes in <keyword id="20094323" type="General" weightage="20" keywordseo="repo-rate" source="keywords">repo rate</keyword>, which were left unchanged by RBI this time around. Why are these two so chummy, you might ask. Well, <keyword id="173069" type="General" weightage="20" keywordseo="Home-loan-interest" source="Orion">home loan interest</keyword> rates are a sum of two things: <ol><li>Repo Rate (the rate at which RBI lends money to banks)</li><li>Operational cost + margins</li></ol>Any plus or minus in this equation would send your home loan interests tanking, or skyrocketing. Vivek Iyer, Partner, Grant Thornton Bharat explains that any change in the repo rates impacts the cost of funds and thereby the home loan interest rates. “When the interest rates are expected to reduce, the corresponding impact will be in the form of a reduced EMI. Home loan borrowers should always try to borrow at a floating rate when interest rates are expected to reduce and at a fixed rate when the interest rates are expected to increase. This minimizes the outflow in the form of EMIs that the home loan borrowers will experience”, he continues. So, no change in repo rates means no change in your home loan interest payout and no financial relief whatsoever. A rate cut, which most experts are anticipating will start this December, would mean your EMI payments come down, and your wallet might save a little more. But there’s also a chance of an UNO reverse happening. In case RBI is in the mood to hike the interest, your home loan EMIs might end up taking more from your pockets. Consider this. You took a floating interest rate home loan worth Rs 50 lakh in January 2022 at 8% p.a., for a period of 20 years. This brings your total monthly EMI to Rs Rs 41,822. But, as luck would (or won't) have it, RBI raised the interest rate by 250 basis points between May 2022 and February 2023, bringing it to its current status of 6.5%. Some back-of-the-envelope calculations suggest that now, your home loan interest payout will also rise by a hefty 2.5%, taking the total to 10.5%. In other words, you’ll have to dish out Rs 49,919 per month as EMI. Now, won't you heave a sigh of relief if the RBI were to bring down the interest rate by say, even 50 basis points, or 0.5%? Agreed, your EMI will come down just marginally, to Rs 48,251. But look at this over a 20-year period, and you’ll see how big the difference is. <h2>Are rates set to change anytime soon?</h2>Generally, RBI hikes the repo rates if it sees inflation spiralling out of control. Then, in a bid to reduce consumer spending, it raises interest rates to make borrowing expensive. But when the apex bank sees sluggish consumption in the economy, inflation in control and wants to boost spending, it slashes down on interest rates, making it more lucrative for people to borrow. As of now, most experts are not anticipating any changes in the interest rates anytime soon. This means home loans are not getting cheaper anytime soon. The CPI data, which came out yesterday, saw inflation rise to 5.49% in September, compared to 3.65% last month. Food and beverage prices jumped to a four-month high of 8.36% in September, as opposed to a 5.3% rise in August. So a rate cut seems a no-go at the moment! Apurva Sheth, Head of Market Perspectives and Research, SAMCO Securities explains that the RBI had probably expected a hardening of inflation and that's why it chose to hold on to the rates in the monetary policy announcement last week. “Now, it seems that RBI will take a cautious stance going ahead and will not be in a hurry into rate cuts like its global peers”, he added. In all this, one thing is clear, in the grand movie of the Indian economy, the RBI has chosen stability over drama. And just like in every good Bollywood film, we're left wondering what twist the sequel will bring. Until then, it might be “The End" for rate cuts, but the show must go on for the Indian economy!

Simply Put: Boom or bust — how RBI’s decision to leave rates unchanged affects homebuyers

<keyword id="19951168" type="General" weightage="20" keywordseo="RBI-governor-Shaktikanta-Das" source="keywords">RBI governor Shaktikanta Das</keyword> announced no change in prevailing interest rates and maintained the withdrawal of accommodation stance in the ongoing <keyword id="20456086" type="General" weightage="20" keywordseo="Monetary-Policy-Review" source="keywords">Monetary Policy Review</keyword> (MPC) meeting, which was held between August 6th and August 8th, 2024. This was the 50th MPC meeting since its inception. <h2>What is MPC meet? </h2>The <keyword id="19899810" type="General" weightage="20" keywordseo="Reserve-Bank-of-India" source="keywords" meta.keywordsubtype="org" meta.entityname="Reserve Bank of India" meta.hostid="261" meta.entityid="Reserve Bank of India">Reserve Bank of India</keyword> (RBI) held its third <keyword id="22709762" type="General" weightage="20" keywordseo="bi-monthly-MPC-meet" source="keywords">bi-monthly MPC meet</keyword>, which began on August 6th, 2024 and concluded today. Experts were widely of the view that there would be no significant changes in the <keyword id="22709761" type="General" weightage="20" keywordseo="benchmark-repo-rate" source="keywords">benchmark repo rate</keyword> during this MPC meet, and that the MPC would keep it unchanged at 6.5%. This is the ninth time the <keyword id="20094323" type="General" weightage="20" keywordseo="repo-rate" source="keywords">repo rate</keyword> has been left unchanged, since it was last increased from 6.25% to 6.5% on 8th February 2023. MPC includes 6 members, three from RBI, and three external experts. Together, they are responsible for setting the benchmark interest rate, or repo rate. This is the rate at which the central bank of the country i.e. RBI lends to other banks of the country. If it is increased, the same translates into higher borrowing costs for consumers as well. <h2>What was the decision? </h2>MPC decided, by a majority of 4:2 members, that the repo rate will be left unchanged at 6.5%. This was done to align both market expectations and monetary policies. The MPC has decided to focus on maintaining price stability to ensure growth, and that inflation progressively aligns with the target. Notably, the RBIs inflation target is around 4%, with a tolerance band of about 2%. This target was last met in January 2021, when inflation stood at 4.06%. Per the governor, "PMI services stood strong at 60.3 in July, and have been above 60 for seven constitutive months, indicating robust expansion of services. On the demand side, household consumption is supporting a turnaround in rural demand and steady discretionary spending in urban areas is also being observed". As Das noted, sustained buoyancy in services activity is expected to support urban consumption. Moreover, government's thrust on capex, and signs of pickup in private investment would drive investment activity in the current year. Taking all these factors into consideration, the real GDP growth for 2024-25 has been projected at 7.2% . This is distributed as 7% in Q1, 7.1% in Q2, 7.2% in Q3 and 7.3% in Q4. Explaining the moderation of growth projections for the first quarter of the current FY, as compared to information given during previous MPC in June, Das explained that this was primarily due to updated information on certain high frequency indicators which show lower than anticipated results. These include corporate profitability, central government expenditure and core industries output, among others. As for CPI inflation for current FY, it has been pegged at 4.5%. Accordingly, Q2 projections stand at 4.4%, Q3 at 4.7% and Q4 at 4.3%. CPI inflation for the first quarter of next financial year i.e. Q1FY26 is projected at 4.4%. <h2>Is high food inflation a key concern? </h2>In June 2024, food inflation surged, pushing overall CPI (consumer price index) inflation to 5.1% during the month, from 4.8% in May. It may be noted that food inflation forms a significant part of CPI. That is why, even with a supportive base effect from the previous year, food inflation jumped to 9.4%, driven mostly by high vegetable prices, which have remained in double digits for eight months. "The inflation trajectory has been moderating, and we do expect it to moderate, but the pace of modulation has been uneven and slow. So, we need to be watchful to ensure that we move closer to target, and CPI inflation gets aligned to the target on a durable basis", continued Das. <h2>Some segments of personal loans are excessively leveraged, notes Das </h2> Going ahead, there will be a public repository of digital lending apps deployed by the regulator. This comes amidst a spike in number of unauthorised lending apps, and certain segments of personal loans witnessing excess leverage through retail loans, most of which are for consumption purposes, the governor noted. Additionally, the current UPI transaction limit for tax payments is being enhanced from Rs 1,00,000 to Rs 5,00,000 per transaction. Also, the clearance cycle is also being shortened and made almost continuous, with cheques being cleared on the same day, within just a few hours of being presented, benefiting all stakeholders. <h2>What are the experts saying? </h2>Says Anuj Puri, Chairman - ANAROCK Group, "The RBI's decision to keep repo rates unchanged at 6.5% for ninth consecutive time aligns well with yesterday's announcement on indexation benefits. It sets a positive tone for the housing industry. Maintaining interest rates offers consistency in borrowing costs, which will prompt more aspiring homebuyers to consider taking the plunge - and thus drive demand in the housing market. With interest rates staying steady, EMIs will remain manageable for current and potential homeowners, potentially leading to increased home sales - particularly in the price-sensitive affordable segment". <h2>When is the next MPC scheduled?</h2>The upcoming RBI MPC meets are scheduled to take place between October 7th and 9th, December 4th an 6th, 2024, and February 5th and 7th, 2025.

RBI MPC Meet: Repo rates unchanged at 6.5%, inflation moderating, albeit slowly

<ul><li>Long-duration <keyword id="35474" type="General" weightage="20" keywordseo="debt-funds" source="Orion">debt funds</keyword> are a category of mutual funds that primarily invest in fixed-income securities with extended maturity periods of seven years or more. </li><li>Long-term bond funds tend to exhibit an inverse relationship with interest rates.</li><li>Once interest rates start coming down as expected, investors in long duration debt funds will be benefited. </li></ul>With the Nifty surpassing 22,000 and the Sensex above 73,000, the bulls are making merry on Dalal Street. Indian investors, seeking to ride the wave, are going gung-ho about mutual funds, especially in the small and mid-cap category, but debt funds are not in vogue. However, investment gurus say that no investor should ignore debt funds because it is an important part of asset allocation. Moreover, at present, a category of debt funds, known as long duration debt funds, is creating a buzz. This is because currently the repo rate is 6.50% after the Reserve Bank of India (<keyword id="19899808" type="General" weightage="20" keywordseo="rbi" source="keywords">RBI</keyword>) maintained status quo for the fifth consecutive time in its last policy. Before that the RBI had hiked the repo rate by 2.5% from May 2022 to February 2023. “With the high interest rate regime behind us, interest rates are expected to reduce going ahead, aided by moderating inflation and crude oil prices. We expect RBI to cut interest rates in 2024,” says Ajaykumar Gupta, chief business officer, TRUST Mutual Fund. If this unfolds, it is good news for long term debt funds. “A cut in interest rates would lead to additional gains in form of bond price appreciation, which would benefit investors investing in <keyword id="6775742" type="General" weightage="20" keywordseo="long-duration-funds" source="Orion">long duration funds</keyword>,” says Gupta. What are long duration funds? Long-duration debt funds are a category of mutual funds that primarily invest in fixed-income securities with extended maturity periods of seven years or more. “These funds, having a portfolio Macaulay duration of more than seven years as per SEBI mandate, typically invest in instruments like Government bonds, corporate bonds, treasury bills, bonds issued by banks etc., making them suitable for long term investors,” says Gupta. Macaulay duration is a measure used in finance to estimate the weighted average time it takes for an investment to recover its initial cost in the form of present value of future cash flows, including interest and principal payments. “However, there are different kinds of debt funds that can take a long-term debt fund kind of form- dynamic bond funds or gilt funds- fund managers can invest in long duration bonds,” says Pankaj Pathak, fund manager, fixed income, Quantum AMC. Relation with interest rates Long-duration debt funds tend to exhibit an inverse relationship with interest rates. Whenever interest rates fall bond prices move up and vice versa. When interest rates fall, mutual funds that invest in long-term bonds typically experience an increase in bond prices. As bond yields move inversely to interest rates, the existing fixed-rate bonds held by these funds become more attractive. The higher bond prices contribute to capital gains for investors. “If the interest rate goes up, the return of long duration debt funds comes down. If interest rates start coming down then the return of long duration bond funds go up. The credit risk of long duration debt funds is not that high as they invest mostly in government securities, but the interest rate risk is very high,” says Soumya Sarkar, Co-Founder, Wealth Redefine, an AMFI registered mutual fund distributor. <table style="border-width: initial; border-style: none;" class="redcator-table-advance"></colgroup><tbody><tr><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;background-color:#1589ff;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Funds </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;background-color:#1589ff;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">1 year return (%) </td></tr><tr><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Aditya Birla Sun Life Long Duration Fund - Direct Plan </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">7.57 </td></tr><tr><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Axis Long Duration Fund - Direct Plan </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">6.92 </td></tr><tr><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">ICICI Prudential Long Term Bond Fund - Direct Plan </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">6.87 </td></tr><tr><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Nippon India Nivesh Lakshya Fund - Direct Plan </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">7.07 </td></tr><tr><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">SBI Long Duration Fund - Direct Plan </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">7.53 </td></tr></tbody><tbody></tbody></table> Source: Value Research Should you invest in long duration debt funds? Interest rates have seen a prolonged pause and thus fixed income proponents have been waiting for a pivot in stance. However, investors are advised to go with a cautious approach. “If the interest rates go up or the yields go up from here, one may see a negative return, for a short period of time, but if one has a two to three year time horizon, the interest should come down and one should generate good returns,” says Sarkar. The final word Selecting a good long duration debt fund requires careful consideration of various factors. “One must review the fund's portfolio holdings to understand the types of securities it invests in, including government bonds, corporate bonds, and other debt instruments. Further, one should examine the credit quality of the portfolio by reviewing the credit ratings assigned to the underlying securities,” says Gupta. One might also evaluate the fund's performance by comparing it to both its benchmark and other funds in the long-duration category. Individuals contemplating long-term investments should thoroughly evaluate their risk tolerance, investment objectives, and time horizon before deciding to invest in these funds.

Explained: Is this the right time to invest in long duration debt funds?

<ul><li>Amidst the rising cost of properties and the cumulative 250 bps rate hikes by the <keyword id="30067" type="General" weightage="20" keywordseo="rbi" source="Orion">RBI</keyword> in the last one year and more, affordable housing buyers have taken a blow. </li><li>With a steady interest rate environment, potential buyers of affordable homes may be encouraged to proceed with their home buying plans. </li><li>Banks may potentially be required to provide borrowers with clearer and more detailed information about how their loan EMIs are calculated and how they may vary over time. </li></ul>The Reserve Bank of India keeping lending (repo) rates unchanged is nothing but good news for aspiring <keyword id="6371902" type="General" weightage="20" keywordseo="home-buyers" source="Orion">home buyers</keyword>, especially for those in the middle income categories who aspire to buy a home. <keyword id="1263554" type="General" weightage="20" keywordseo="affordable-home" source="Orion">Affordable home</keyword> buyers were at the receiving end of rate hikes for more than a year before the RBI paused hiking rates. Now, the third successive pause gives buyers a better planning window, especially as economists don’t expect further hikes till the end of the year. “By maintaining a steady interest rate environment, there is a hopeful projection that these potential buyers will be encouraged to proceed with their home buying plans,” says Pradeep Aggarwal, founder and chairman, Signature Global, a real estate developer. As per research by ANAROCK, a real estate service provider, for homebuyers with a ₹30 lakh loan of a 20 year tenure, EMIs jumped up by 20% in the last two years. <keyword id="6354730" type="General" weightage="20" keywordseo="home-loan" source="Orion">Home loan</keyword> borrowers who were paying an EMI of approximately ₹22,700 in July 2021 are now paying approx. ₹7,300 - an increase of approx. ₹4,600 per month. “While home prices have also risen by 8-15% over the last twelve months, this increase is likely to be kept in balance by the countervailing forces of the unchanged policy rates. With interest rates holding steady, affordability synergies will continue to persist and thus support the homebuyer momentum and residential sales during the coming quarters,” says Samantak Das, chief economist and head research &amp; REIS India, JLL, another real estate service provider. Greater transparency on EMIs for floating rate loans The RBI Governor during his monetary policy speech said that steps will be taken to bring greater transparency to equated monthly instalments of floating rate loans. Says Das, “When there is change in policy rates and interest rates change, banks normally change the tenure without intimating the customers. Only when the EMI changes, is the customer intimated. What this would mean is that even for a tenure change banks need to adhere to a framework and intimate customers.” While specifics have not been provided in the monetary policy, such transparency can mean a number of things. “For example, banks may potentially be required to provide borrowers with clearer and more detailed information about how their loan EMIs are calculated and how they may vary over time,” says Anuj Puri, Chairman, ANAROCK Group. Lenders may also need to provide borrowers with comprehensive information on how the interest rate for their floating rate loan is determined. This may involve specifying the benchmark rate and explaining how the borrower's interest rate is derived from the benchmark rate, including any additional margin or spread added by the lender. “Borrowers could potentially expect a breakdown of their EMI components, including the portion allocated to interest and principal repayment, to help them understand how their monthly payment is distributed and how much is going towards reducing the principal amount owed versus paying interest charges,” says Puri. In the event that the interest rate for a variable-rate loan fluctuates, banks might need to inform borrowers in a timely manner about the alteration, including its effect on their EMIs. This procedure would enable borrowers to remain updated regarding alterations in their repayment commitments and manage their financial plans accordingly.

With RBI MPC not hiking rates, affordable home buyers have clearer planning trajectory

<ul><li>Most economists believe that a 25-basis-point rate hike in April is almost certain. </li><li>This is after the February CPI inflation print came in at 6.44% – a number that is slightly lower than January’s print of 6.52%, but still above the Reserve Bank of India’s upper tolerance limit of 6%. </li><li>The <keyword id="117388" type="General" weightage="80" keywordseo="us-fed" source="Orion">US Fed</keyword>, which has so far led rate hike action, is expected to take a pause in March due to the collapse of Silicon Valley Bank and Signature Bank. </li></ul>Shaktikanta Das-led Monetary Policy Committee (MPC) is expected to hike the <keyword id="43352" type="General" weightage="20" keywordseo="Repo-rate" source="Orion">repo rate</keyword> by 25 basis points (bps) come April, as retail inflation continues to remain hot and above the central bank’s upper tolerance limit of 6%. This is despite the fact that the recent collapse of Silicon Valley Bank and Signature Bank in the US has resulted in<a href="https://www.businessinsider.in/policy/economy/news/the-godot-recession-could-be-pushed-back-further-svb-crisis-could-force-us-fed-to-pause-rate-hikes/articleshow/98612680.cms"> analysts saying</a> the US Federal Reserve is likely to pause its rate hike spree to let the country’s banking system take a breather. While the US <keyword id="45672" type="General" weightage="80" keywordseo="fed" source="Orion">Fed</keyword> has led other central banks in raising interest rates so far, the Reserve Bank of India (<keyword id="30067" type="General" weightage="100" keywordseo="rbi" source="Orion">RBI</keyword>) could stick to its guns regardless of what the Fed does on March 22, when it meets to decide the direction of its monetary policy, analysts say. “The RBI will remain hawkish in the April policy as inflation prints have spiked back over 6% in January-February along with core inflation remaining sticky above 6%. We continue to expect a 25 bps repo rate hike in the April policy,” said Suvodeep Rakshit, senior economist, Kotak Institutional Equities. Hundred basis points make up a percentage point. <cmsannotation type="cmsannotation" annotationid="Hot inflation, hawkish Das" comment="subhead" text="Hot inflation, hawkish Das">Hot inflation, hawkish Das</cmsannotation> Inflation running hot could also result in RBI’s Das maintaining his hawkish stance. Announcing the last rate hike in February, Das noted that core inflation has remained sticky. “On balance, the Monetary Policy Committee (MPC) was of the view that further calibrated monetary policy action is warranted to keep inflation expectations anchored,” Das had said at the time. Since then, the inflation numbers have not been encouraging – the<a href="https://www.businessinsider.in/india/news/economists-are-shocked-concerned-and-worried-as-retail-inflation-hits-3-month-high-in-january/articleshow/97900258.cms"> January inflation</a> print came as a shocker, with the consumer price index (CPI) inflation rising from 5.72% in December to 6.52% in January. It was <a href="https://www.businessinsider.in/finance/news/retail-inflation-sees-marginal-fall-to-6-44-in-february-2023/articleshow/98610218.cms">6.44%</a> in February. This has prompted <a href="https://www.businessinsider.in/finance/news/inflation-expected-to-cool-down-but-economists-expect-another-rate-hike-after-january-shocker/articleshow/97983231.cms">analysts to suggest</a> that RBI could go in for another 25 bps hike in April, taking the repo rate to 6.75% and the quantum of hikes to 275 bps since May 2022. “We also believe that a 25-basis-point hike in April by the RBI is almost certain,” said Nikhil Gupta, chief economist at Motilal Oswal, adding that the worst of inflation was likely behind us. RBI’s next bi-monthly monetary policy meeting is scheduled for April 6. <cmsannotation type="cmsannotation" annotationid="April hike certain according to most economists" comment="subhead" text="April hike certain according to most economists">April hike certain according to most economists</cmsannotation> Despite the adverse developments in the US banking system, most analysts maintained that a 25 bps hike in April is almost a given. “We do think the upcoming meeting in April is going to be another 25 basis points hike, but thereafter we think the monetary policy committee is going to be divided,”<a href="https://www.businessinsider.in/finance/banks/news/rbi-may-hike-benchmark-lending-rates-by-25-bps-in-april-dbs/articleshow/98607945.cms"> said</a> Radhika Rao, senior vice president and economist, DBS Bank. On the other hand, according to Siddhartha Sanyal, chief economist and head of research at Bandhan Bank, the developments in the banking sector in the US “will likely have a bearing on the Fed’s course of action, and, thereby, on monetary policy across countries.” In conjunction with the drying up of excess liquidity in the Indian banking system, the “bar for further hike in the repo rate has moved higher,” according to Sanyal. Economists at SBI Research have pushed back their estimates by a month for inflation cooling down to 5% – they now see it happening by April, from March earlier. “Inflation will decline materially and come down to 5% by April 2023. For Q1 FY24, we expect an average CPI of 5.1%,” said a report by SBI Research. RBI has projected CPI inflation at 6.4% for FY23 and 5.3% for FY24. While the April rate hike is almost certain now, further hikes will depend on whether or not there are more inflation shockers in store. SEE ALSO: <a href="https://www.businessinsider.in/finance/banks/news/indian-banks-pass-jefferies-silicon-valley-bank-test-brokerage-finds-them-well-placed/articleshow/98628328.cms">Indian banks pass Jefferies’ Silicon Valley Bank test, brokerage finds them ‘well placed’</a> <a href="https://www.businessinsider.in/policy/economy/news/the-godot-recession-could-be-pushed-back-further-svb-crisis-could-force-us-fed-to-pause-rate-hikes/articleshow/98612680.cms">The ‘Godot’ recession could be pushed back further, SVB crisis could force US Fed to pause rate hikes</a> <a href="https://www.businessinsider.in/business/corporates/news/adani-stocks-rally-after-group-prepays-2-15-billion-margin-linked-loans/articleshow/98601176.cms">Adani stocks rally adds ₹2.61 lakh crore to group market cap in March so far</a>

RBI largely expected to hike repo rate by 25 bps in April even as US Fed expected to take a pause

<ul><li>The Reserve Bank of India’s (<keyword id="30067" type="General" weightage="20" keywordseo="rbi" source="Orion">RBI</keyword>) <keyword id="6357126" type="General" weightage="20" keywordseo="monetary-policy" source="Orion">Monetary Policy</keyword> Committee (<keyword id="6369693" type="General" weightage="20" keywordseo="mpc" source="Orion">MPC</keyword>) kept the repo rate unchanged at 6.5%. </li><li>The MPC has hiked the repo rate six times, with the total quantum of rate hikes standing at 250 basis points since May 2022. </li><li>Economists had<a href="https://www.businessinsider.in/finance/news/rbi-largely-expected-to-hike-repo-rate-by-25-bps-in-april-even-as-us-fed-expected-to-take-a-pause/articleshow/98635125.cms"> predicted</a> a 25-basis point rate hike as retail inflation in January and February came above RBI’s upper tolerance limit. </li></ul>The Reserve Bank of India’s Monetary Policy Committee (MPC) has decided to keep the policy repo rate unchanged at 6.5%, on Thursday. The MPC had unanimously decided to keep the repo rate unchanged, RBI governor Shaktikanta Das said in his speech. “The decision to pause repo rate is for this meeting only. MPC will not hesitate to take further action in future meetings if it’s needed,” he added. The committee also estimates that the annual inflation for FY24 will be at 5.2%. Das said that the fight against inflation is not yet finished. “The war against inflation will continue until we see a durable decline in inflation, closer to the target,” Das said. Retail inflation came in above 6% in <a href="https://www.businessinsider.in/india/news/economists-are-shocked-concerned-and-worried-as-retail-inflation-hits-3-month-high-in-january/articleshow/97900258.cms">January</a> and <a href="https://www.businessinsider.in/finance/news/retail-inflation-sees-marginal-fall-to-6-44-in-february-2023/articleshow/98610218.cms">February</a>, above RBI’s 6% upper tolerance limit. The MPC has hiked repo rate six times since May last year, with the total quantum of rate hikes standing at 250 basis points, taking the repo rate from 4% to 6.5%. The last rate hike was <a href="https://www.businessinsider.in/finance/news/rbi-hikes-interest-rates-by-25-basis-points-to-6-5-says-core-inflation-remains-sticky/articleshow/97716217.cms">announced in February</a> this year at 25 basis points, with RBI governor Shaktikanta Das stating core inflation has remained sticky. “It is now necessary to evaluate the cumulative impact of these rate hikes. Under these circumstances, we have to be extremely prudent in our actions. We have always been really watchful and have adopted a calibrated and balanced approach,” Das added. While the year of 2023 began on a promising note with resilience in economic activity, the narrative has changed in March, he said adding, “Global markets are undergoing a renewed phase of turmoil,” speaking about the banking turmoil in advanced economies during his speech. <cmsannotation type="cmsannotation" annotationid="Economists had expected a 25-basis point hike" comment="subhead" text="Economists had expected a 25-basis point hike">Economists had expected a 25-basis point hike</cmsannotation> Economists had<a href="https://www.businessinsider.in/finance/news/rbi-largely-expected-to-hike-repo-rate-by-25-bps-in-april-even-as-us-fed-expected-to-take-a-pause/articleshow/98635125.cms"> predicted</a> a <keyword id="17051598" type="General" weightage="20" keywordseo="25-basis-point" source="Orion">25 basis point</keyword> rate hike due to a spike in inflation. Economists maintained their stance despite the banking sector crisis in the US and Europe. A few also believed that the RBI would take a pause after the April hike. “We expect a pause on rates to allow the lagged impact of hikes to filter through, a likely benign inflation profile (with an eye on risks) and attention on growth conditions,” said Radhika Rao, executive director &amp; senior economist at DBS Group Research. However, SBI Research <a href="https://www.businessinsider.in/finance/banks/news/rbis-mpc-could-pause-rate-hikes-in-april-to-gauge-the-impact-of-hikes-so-far-sbi-research/articleshow/99030220.cms">struck a contrasting note</a>, underlining that the MPC might want to assess the impact of the 250 basis point hikes done so far. It’s also exactly what Das said during the announcement, adding that the MPC will be closely monitoring the evolving inflation outlook. <cmsannotation type="cmsannotation" annotationid="Real estate body had urged RBI to halt rate hikes" comment="subhead" text="Real estate body had urged RBI to halt rate hikes">Real estate body had urged RBI to halt rate hikes</cmsannotation> The real estate sector in particular has been requesting the RBI to take a pause in rate hike, to stem the rising home loan rates, and its impact on homebuyers — both old and new. The Confederation of Real Estate Developers’ Association of India (CREDAI) had sent a formal <a href="https://www.businessinsider.in/finance/news/repo-rate-hike-will-slowdown-real-estate-reverse-post-covid-trends-says-industry-body-to-rbi/articleshow/99117620.cms">request</a> seeking a pause, to prevent stress in the real estate sector. "In the past one year, the cost of construction has risen rapidly due to the gradual increase in <keyword id="128554" type="General" weightage="20" keywordseo="repo-rates" source="Orion">repo rates</keyword> by RBI, which has adversely impacted many developers as they struggle to cope up financially," said Harsh Vardhan Patodia, President, CREDAI. Ramani Sastri, Chairman and MD, Sterling Developers also said that another rate hike might slow down home buying decisions for a short to medium term. SEE ALSO: <a href="https://www.businessinsider.in/stock-market/news/after-the-ides-of-march-analysts-pick-best-stocks-that-can-be-bought-on-dips/articleshow/99272438.cms">After the Ides of March, analysts pick best stocks that can be bought on dips</a> <a href="https://www.businessinsider.in/finance/news/-jio-financial-services-demerger-and-listing-a-key-moment-for-reliance-stock/articleshow/99264110.cms">Jio Financial Services demerger and listing a ‘key moment’ for Reliance stock</a> <a href="https://www.businessinsider.in/finance/banks/news/loan-growth-showing-signs-of-reversal-from-cyclical-highs-but-asset-quality-to-remain-healthy/articleshow/99245377.cms">Loan growth showing signs of reversal from cyclical highs, but asset quality to remain healthy</a>

RBI’s Monetary Policy Committee keeps repo rate unchanged at 6.5%, for now

<ul><li>Economists expect <keyword id="22195" type="General" weightage="20" keywordseo="inflation" source="Orion">inflation</keyword> to cool down and drop to 5% by April this year, comfortably below the upper tolerance limit of 6% set by the Reserve Bank of India.</li><li>However, the <keyword id="936616" type="General" weightage="20" keywordseo="january-inflation" source="Orion">January inflation</keyword> print shocker has led to economists revisiting their expectations of a pause in rate hikes, with consensus building up for a 25 basis point hike in April.</li><li>Scratching the surface of inflation data, though, economists point at data anomalies and some are waiting to see if a revision in January inflation print takes place.</li><li><keyword id="30067" type="General" weightage="80" keywordseo="rbi" source="Orion">RBI</keyword> governor <keyword id="6359111" type="General" weightage="20" keywordseo="Shaktikanta-Das" source="Orion">Shaktikanta Das</keyword> will also have to tame the unpredictable food inflation before he can declare victory.</li></ul>Economists expect inflation to cool down and drop to 5% by April this year, comfortably below the upper tolerance limit of 6% set by the Reserve Bank of India. However, in an about turn of sorts, economists now expect another 25 basis point rate hike in April when the central bank’s next monetary policy meet is scheduled. <a href="https://www.businessinsider.in/india/news/economists-are-shocked-concerned-and-worried-as-retail-inflation-hits-3-month-high-in-january/articleshow/97900258.cms">Inflation print</a> for January 2023 sprung a surprise, with the consumer price index (CPI) rising to 6.52% while economists expected it to be between 6% to 6.2%. Core inflation edged up to 6.22% in January, from 6.1% in December. This has pushed back the estimates of the economists at <keyword id="2017241" type="General" weightage="80" keywordseo="sbi-research" source="Orion">SBI Research</keyword>, who now believe inflation will cool down to 5% by April this year, as against the previous estimate of March. “Inflation will decline materially and come down to 5% by April 2023. For Q1 FY24, we expect an average CPI of 5.1%,” said a report by SBI Research. <a href="https://www.businessinsider.in/finance/news/rbi-hikes-interest-rates-by-25-basis-points-to-6-5-says-core-inflation-remains-sticky/articleshow/97716217.cms">RBI has hiked repo rates six times</a> since May 2022 so far, taking the quantum of hikes to 250 basis points and the repo rate from 4% to 6.5%. <div type="image" title="CPI inflation and rate hikes 2022-23." msid="97983240" hostid="261" sizebytes="24820" caption="&amp;lt;p&amp;gt;CPI inflation and rate hikes since in 2022-23&amp;lt;/p&amp;gt;"></div> <cmsannotation type="cmsannotation" annotationid="Another rate hike on the cards" comment="subhead" text="Another rate hike on the cards">Another rate hike on the cards</cmsannotation> The inflation shocker in January has resulted in economists revisiting their<a href="https://www.businessinsider.in/finance/news/rbi-continues-to-watch-inflation-closely-even-as-industry-hopes-for-a-pause/articleshow/97733185.cms"> previous expectations of a pause in rate hikes</a> – they now expect the RBI to deliver one more 25 basis point rate hike in April. “With the inflation sticker shock in January, we now expect the RBI to hike rates at least one more time by 25bps in April, taking the repo rate to 6.75%,” Kaushik Das, chief economist, India &amp; South Asia, Deutsche Bank. To be sure, RBI governor Shaktikanta Das<a href="https://www.businessinsider.in/finance/news/rbi-hikes-interest-rates-by-25-basis-points-to-6-5-says-core-inflation-remains-sticky/articleshow/97716217.cms"> underlined quite clearly</a> that the battle against inflation is not over yet. Das had said that the central bank has ‘Arjuna’s eye’ on inflation during the<a href="https://www.businessinsider.in/finance/news/rbi-hikes-repo-rate-by-35-bps-taking-rates-to-a-high-of-6-25/articleshow/96045841.cms"> December announcement</a>, and the said eye was still<a href="https://www.businessinsider.in/finance/news/rbi-continues-to-watch-inflation-closely-even-as-industry-hopes-for-a-pause/articleshow/97733185.cms"> firmly on inflation</a> during the February announcement as well. Das said that the overall monetary conditions are still accommodative. Coupled with sticky core inflation, it makes a case for further monetary policy action, he noted. “Adjusted for inflation, the policy rate still trails its pre-pandemic levels,” Das said, adding that we need an unwavering commitment to bring down inflation. “The 25 basis point rate hike is seen as appropriate. Reduction in the size of rate hike lets us evaluate the effect of rate hikes taken so far,” he said. Post the inflation surprise, economists are now coming around to the possibility of another hike come April. “In the absence of any data revisions, the overall inflation trajectory looks heavily skewed to the upside, warranting further rate hikes,” said Kotak Securities. The brokerage said that it will wait to see if the data anomalies observed in the inflation numbers lead to a revision of the inflation print, before revisiting its view on a pause in rate hikes. On the other hand, analysts at Bank of Baroda remain firm in their view that RBI will pause rate hikes for now. “This month and print of the current quarter hold relevance since the RBI would be watchful of the persistence in core and volatility in food inflation to take a call on rates. For now, we remain with our earlier forecast of a pause in the near to medium term,” said Dipanwita Mazumdar, economist, Bank of Baroda. <cmsannotation type="cmsannotation" annotationid="Inflation shocker partly due to data anomalies, say economists" comment="subhead" text="Inflation shocker partly due to data anomalies, say economists">Inflation shocker partly due to data anomalies, say economists</cmsannotation> While the high inflation print has come as a shocker, especially when it is usually expected to come in lower in the month of January, economists suggest data anomalies could be partly to blame for it. Economists at SBI Research noted that they are “perplexed” that there is no linkage between the vegetable prices tracked by the Ministry of Consumer Affairs, and the CPI data. This, they said, has resulted in an anomaly in the inflation print by at least 26 basis points. The research firm gave an example of the difference in vegetable prices being tracked by the ministry as opposed to what is reflected in CPI data. According to the ministry, vegetable prices fell 10% in January, but CPI data shows a decline of 4% only. “This anomaly is making it a nightmare to predict vegetable prices data,” the research firm noted. Nomura also said in a note that it has noticed a divergence in the headline cereal inflation, and the sum of its components. <cmsannotation type="cmsannotation" annotationid="Sticky core inflation is sticky" comment="subhead" text="Sticky core inflation is sticky">Sticky core inflation is sticky</cmsannotation> Das has been reiterating his concerns about stickiness in core inflation, but the economists at SBI Research maintain that core inflation has always been sticky. “Core CPI data since June 2014 indicates that stickiness is the normal property of core inflation,” the research firm said, noting that the average core inflation since June 2012 is 5.8%, as compared to the existing core inflation of 6.22%. It added that this was due to a shift in consumer expenditure patterns towards health and education, and gold purchases. While Das wants a meaningful reduction in inflation, economists at SBI Research say that this will have to be achieved only through a reduction in food inflation. However, its unpredictable nature, as observed in the January inflation print, means that RBI’s task is cut out and Das has an unenviable job at hand. SEE ALSO: <a href="https://www.businessinsider.in/business/corporates/news/maggi-kitkat-maker-nestle-india-reports-highest-domestic-growth-in-a-decade-in-fy22/articleshow/97974283.cms">Maggi &amp; KitKat maker Nestle India reports highest domestic growth in a decade in FY22</a> <a href="https://www.businessinsider.in/business/corporates/news/adani-group-stocks-surge-after-msci-delays-its-decision-to-may/articleshow/97969092.cms">Adani group stocks surge after MSCI delays its decision to May</a> <a href="https://www.businessinsider.in/finance/news/rupee-headed-for-83-and-beyond-as-rate-hike-fears-persist/articleshow/97950536.cms">Rupee headed for 83 and beyond, as rate hike fears persist</a>

Inflation expected to cool down but economists expect another rate hike after January shocker

Apart from the decision on the repo rate hike by the Reserve Bank of India's (<keyword id="30067" type="General" weightage="20" keywordseo="rbi" source="Orion">RBI</keyword>) Monetary Policy Committee (<keyword id="6369693" type="General" weightage="20" keywordseo="mpc" source="Orion">MPC</keyword>) at its upcoming meeting, one can also expect few more things post the discussions. Economic experts expect the <keyword id="15698737" type="General" weightage="20" keywordseo="mpc-to-hike-the-repo-rate" source="Orion">MPC to hike the repo rate</keyword> by 25-35 basis points (bps) with industry lobby body ASSOCHAM also urging the central bank to do the same. Further it will also be interesting to see whether there will be unanimity amongst the members of the MPC on the decisions taken at the ensuing meeting. Post MPC meeting, the RBI Governor Shaktikanta Das is expected to share what the bank has written to the central government as to the reasons for not controlling the inflation and the steps that are being taken to reign in the same. The MPC had met on November 3, to discuss what it would tell the central government on the reasons why it was not able to restrain the inflation. As per the Section 45ZN of the RBI Act, when the central bank fails to meet the inflation target, it shall send a report to the Central government listing: the reasons for failure to achieve the inflation target; remedial actions proposed to be taken by it; and an estimate of the time-period within which the inflation target shall be achieved pursuant to timely implementation of proposed remedial actions. The proceedings of the said MPC meeting have not been made public even though the law provides to the contrary. As per section 45ZK, the RBI shall publish, after the conclusion of every meeting of MPC, the resolution adopted by the said Committee. Further, as per the Section 45ZL of the RBI Act, the minutes of the MPC meeting has to be published on the 14th day after every meeting including: the resolution adopted at the meeting of the MPC; the vote of each member of the MPC, ascribed to such member, on resolutions adopted in the said meeting; and the statement of each member of the MPC under sub-section (11) of Section 45ZL on the resolutions adopted in the said meeting. On the issue of unanimity amongst the MPC members, at the September MPC meeting, Dr. Ashima Goyal voted against the resolution to hike the repo rate by 50 basis points to 5.90 per cent. Goyal was for a hike of 35 basis points and explaining his reasons voted against the resolution. However, the resolution was passed by a 5:1 majority. In India, the retail inflation rose to 7.41 per cent in September. At the same meeting, another member Prof. Jayanth R. Varma voted against the second part of the resolution on the withdrawal of accommodation to ensure inflation remains within the target. Varma said the MPC should now pause rather than focus on further tightening. On the issue of upward rate revision, he was for upward revision by 60 basis points instead of 50 basis points that was proposed. As the difference between the two was only marginal Varma voted in favour. Be that as it may, the expectation of the MPC meeting is that the repo rate hike will be a moderate one and range between 25-35 bps. The RBI has hiked the repo rate by 190 bps from four per cent to 5.90 per cent. Now MPC will take into account the gross domestic product (GDP) growth estimates, the foodgrain production estimates, inflation projection, global economic activity and other factors. "The RBI will be presenting the monetary policy against the backdro p of GDP growth slowing down as well as inflation being high above six per cent," Madan Sabnavis, Chief Economist, Bank of Baroda said. According to him, the MPC will continue with rate hikes this time though the magnitude will be lower - probably 25-35 bps, "More specifically we do believe that the terminal repo rate for th e financial year will be 6.5 per cent, which means there will be one more rate hike in February. It is unlikely to change the stance and the withdrawal of liquidity will continue," he added. "We expect a 35 bps rate hike in the upcoming meeting. The Consumer Price Index (CPI) inflation is likely to moderate further in the coming months and slip below six per cent by the end of the fiscal year," Rajani Sinha, Chief Economist, CARE Ratings told IANS. She also said the Wholesale Price Index (WPI) has also fallen sharply from 16 per cent in May/June to around eight per cent. "The fall in global commodity prices comes as a big relief. However, the concern is that core inflation in India still remains high above six per cent. Food inflation and specifically cereal inflation is also high," Sinha pointed out. This, in turn, will put upward pressure on household inflationary expectations which is already at a high of around 10 per cent. Hence, while there is some reprieve on the inflation front, RBI would remain vigilant, she added. On the growth front, high frequency economic indicators like auto sales, GST collection, e-way bill, PMI continue to indicate healthy recovery. However, some consumption indicators like IIP consumer durables and non-durables remain weak, Sinha said. Moreover, external demand is weakening as the global economy slows down, Sinha said. According to K. Joseph Thomas, Head Research, Emkay Wealth, as far as interest rates go, the trajectory of domestic inflation is of prime importance. "The pressure seems to be easing on the price level, but the comfor t that can be drawn from fuel prices is far from real. The upside risks in fuel prices continue to be a concern," he said. SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/india/news/investment-intent-of-10-5-lakh-crore-received-at-odisha-biz-summit/articleshow/95974094.cms" style="">Investment intent of ₹10.5 lakh crore received at Odisha biz summit</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="http://businessinsider.in/stock-market/news/indian-markets-open-the-week-on-a-mixed-note-sbi-maruti-suzuki-inox-green-energy-among-stocks-in-focus/articleshow/95991254.cms" style="">Indian markets open the week on a mixed note – SBI, Maruti Suzuki, Inox Green Energy among stocks in focus</a>

RBI's MPC meeting could throw up a lot more than just a rate hike, say experts

Over the past few months, there’s been a lot of brouhaha about the lagging pace of bank deposits in India. Simply put, the rate at which Indians are depositing their hard-earned money in banks has been falling constantly, and some blame the increasing financialization of household savings in the country, or the rising preference of Indians towards mutual funds and shares. So, the hypothesis is that people are choosing to invest more in mutual funds and the Indian equity markets through direct investments, IPOs, or NFOs, the money flowing into Indian banks in the form of deposits is slowing down. But is that really the case? <h2>A crisis or a phase?</h2><keyword id="19899808" type="General" weightage="20" keywordseo="rbi" source="keywords">RBI</keyword> data suggested that for the quarter ended June 2024, bank deposits grew at 11.7%. On the other hand, credit growth has outpaced this at 15%. This means that the outflow from banks as loans is far greater than the inflow into them in the form of deposits in Q1 of FY 2024-25. The situation largely saw cut-copy-paste in the first week of September as well, with loans registering a 13.3% YoY growth during the period, while deposits rose only 11.1%. This gap has only been widening for the last 3 years. Since deposits are how banks gather assets to further lend and earn interest income as a consequence, even a slight dip could set the alarm bells ringing for banks, and rightfully so. And truth be told, mutual funds are indeed taking on bank deposits in a big way. Per a report by <keyword id="20250971" type="General" weightage="20" keywordseo="franklin-templeton" source="keywords">Franklin Templeton</keyword>, in August 2024, the AUM (assets under management) of Indian mutual funds, or the total funds managed by them, stood at 31.3% of total bank deposits in the country, up from 24.20% during the year-ago period. As of August 2024, the AUM of mutual funds stood at Rs 66.17 lakh crore, an all-time high. But all said and done, is this really the reason why the rate of bank deposits is falling behind? SBI has dismissed this to be a “statistical myth”, and experts point out that since equity and fund houses also keep the cash in their respective bank accounts, there’s no cause for concern. So, is financialization really to be blamed for the trailing tempo of deposits? Or is something else happening behind the scenes? We take a closer look: <h2>First, are <keyword id="4000333" type="General" weightage="100" keywordseo="household-deposits" source="Orion">household deposits</keyword> really slowing down? And is that a cause of concern?</h2>Data from Motilal Oswal suggests the contrary. Deposits grew by around 10.4% between March 2020 and August 2024. Data from RBI also highlights that as of August 9, 2024, bank deposits witnessed a YoY growth of 10.8%. The loan-to-deposit ratio for the retail segment, which indicates what percentage of its total deposits the banks lend out as loans, has stayed at 77.5%, above the 77% mark for the tenth straight month. Also, we can’t forego the fact that the share of Indian <keyword id="20319599" type="General" weightage="20" keywordseo="households" source="keywords">households</keyword> in bank deposits has indeed slowed down. However, data from Axis AMC shows that the dip is marginal—from 63% in 2022 to 62% in 2023 and 61% in 2024. What has slowed down even more considerably is the share of government deposits in the aggregate bank deposits, which has dipped from 14% in 2018 to 9% in 2024. So, it's not just household deposits, you see. Moreover, as of March 2024, the collective CASA ratio (current and savings account deposits) of all commercial banks in India stood at 41.00%, down from 43.1% in March 2023 and 45.2% in March 2022, marking a nearly 5% point decline over the past year, while still staying over the 10-year average of 39.2%. This implies that Indian banks are relying more on higher-cost funds (savings accounts), which can limit their profitability. <h2>What is this financialisation of savings we are talking about?</h2>Then again, there is no doubt about the growing affinity of Indians towards mutual funds and stock markets. Recent data from CBDT (<keyword id="19942037" type="General" weightage="20" keywordseo="central-board-of-direct-taxes" source="keywords">Central Board of Direct Taxes</keyword>) highlights that India’s net direct tax collection surged by around 22%, driven exclusively by the significant uptick in the collection of <keyword id="20930760" type="General" weightage="20" keywordseo="securities-transaction-tax" source="keywords">Securities Transaction Tax</keyword> (STT), which doubled to Rs 26,154 crore, from Rs 13,352 crore in the year-ago period. Why does this matter? STT is levied when you buy or sell equity shares on stock exchanges, sell equity mutual funds, and trade in futures and options in the equity segment. Such taxes, including the multiple other taxes in equity market investments, are considered as leakages as the money moves out of the economy into government coffers. Data from a ValueQuest report explains that over the last 20 years, the markets have handsomely rewarded the investors, generating over $900 billion in incremental value for them. This is the major driver behind the dramatic rise in investment flowing towards the equity markets. There’s further proof of this budding romance, if you check the demat pudding. The number of demat accounts, which are a primary requisite for participating in the stock markets, also burgeoned by 42.3 lakh in August 2024, taking India’s total tally of demat accounts beyond 17 crore. To put this in perspective, this is almost equivalent to the population of just 8 nations in the world, including China, the US, Brazil and more. Vivek Iyer, Partner, Grant Thornton Bharat thinks it's rather important, as well. “Financialisation of household savings in India is an indication of deepening capital markets in the market, especially from a retail investor standpoint. Bank deposits with a modest rate of return are no longer the only option for savings for investors. Investors today have more avenues for wealth creation in the form of public capital markets, which have democratized wealth creation and provided equality of opportunity to retail investors”, he says. Yes, Indians are investing more and more in the markets, and in mutual funds. But is it a sin to look out for inflation-beating returns, which the stock markets offer, and vanilla bank deposits don't? After all, the allure of 12-13% annual returns offered by equities can certainly pale the stability offered by good old deposits, which generally do not go beyond 9% when it comes to annual returns. But all of this is not what is behind the slowdown. India is still a toddler in the school of savings financialization, with less than 10% of the population holding a demat account, and less than 5% of us saving in equities. That's a drop in the ocean of deposits, far inadequate to trigger a tsunami. <h2>Tell me why lagging deposits have nothing to do with Indians investing more in mutual funds!</h2>Says Shweta Rajani, Head - Mutual Funds, Anand Rathi Wealth Limited, “Households' equity holdings composition grew from 11.1% in FY 23 to 14.7% in FY 24. This trend reflects a growing awareness of investment options, empowering individuals to take control of their financial futures. Despite this transition towards equities, banks still hold a significant share of household financial savings—33.5% in FY24 compared to 34.9% in FY23”. Also, household savings and their subsequent financialization do not have much to do with deposit creation, which is entirely made by banks. What actually drives increased deposits is credit growth or increased lending. When interest rates are eased, people tend to borrow more and spend more, which circulates more money in the economy. For the past 4 years, RBI has been tightening the screws on interest rates, which raises the cost of borrowings, and makes it more expensive to take loans, putting a dampener on credit growth, but effectively curbing inflationary pressures. The last time RBI cut the repo rate by 40 basis points was back in May 2020, 4 years ago. The lag in deposit growth we’re witnessing is almost 3 years old. Coincidence much, or just good old economics at work? But with the <keyword id="19900043" type="General" weightage="20" keywordseo="fed" source="keywords">Fed</keyword> recently setting a rate cut precedent by slashing 50 bps off its interest rate, RBI is expected to follow suit in the next <keyword id="19918491" type="General" weightage="20" keywordseo="mpc" source="keywords">MPC</keyword> (Monetary Policy Committee) meeting, scheduled for November 2024. A rate cut would ease the aforementioned high cost of borrowing, and increase loan-taking for corporates and institutional investors, thereby stoking consumption in the economy. And then, deposit creation in banks is likely to return to its former glory. If not, then that would be a curious case to unravel! But that worry is for another day.

A Deposit Dilemma — What's the fuss about a crisis in Indian bank deposits? Are mutual fund investments to blame?

<ul><li>After a small jump in May by 40 basis points, <keyword id="30067" type="General" weightage="20" keywordseo="rbi" source="Orion">RBI</keyword> hiked the <keyword id="37018" type="General" weightage="20" keywordseo="interest-rate" source="Orion">interest rate</keyword> by another 50 basis in its bid to fight inflation.</li><li>If the RBI expects that inflation will rise beyond its tolerance limit, it hikes the rate at which banks borrow money from the central bank.</li></ul>India’s central bank <a href="https://www.businessinsider.in/finance/news/indias-central-bank-hikes-interest-rates-by-50bps-to-4-9/articleshow/92073644.cms">Reserve Bank of India raised its repo rate </a>for the second consecutive month, from 4.4% to 4.9% on Wednesday. After a small jump in May by 40 basis points, RBI hiked the interest rate by another 50 basis in its bid to fight inflation. For the month of April, the<a href="https://www.businessinsider.in/finance/news/indias-central-bank-hikes-interest-rates-by-50bps-to-4-9/articleshow/92073644.cms"> consumer price inflation</a> touched 7.8%, burning a hole in common man’s pockets. But why exactly is the Indian central bank hiking interest rates? How does it reduce the burden of expenses on common people like you and I? Let’s find out. <div type="image" title="tenor 1" msid="92120652" hostid="261" caption="&amp;lt;p&amp;gt;&amp;lt;em&amp;gt;Wondering where all your money went? &amp;lt;/em&amp;gt;Tenor&amp;lt;/p&amp;gt;"></div> What is <keyword id="43352" type="General" weightage="20" keywordseo="repo-rate" source="Orion">repo rate</keyword>? Before we dive into this, let’s understand what exactly repo rate is. Repo rate stands for ‘repurchasing option or repurchase agreement.’ It is the rate at which commercial banks and financial institutions like SBI, ICICI Bank, HDFC Bank and others borrow money from the central bank. <div type="image" title="unnamed (4)" msid="92120683" hostid="261" caption="&amp;lt;p&amp;gt;BI India&amp;lt;/p&amp;gt;"></div> Why is repo rate increased? If the RBI expects that inflation will rise beyond its tolerance limit, it hikes the rate at which banks borrow money from the central bank. Over the past three months, retail inflation numbers have remained above the RBI’s upper tolerance limit of 6%. The last time inflation was below 4% was before the global pandemic in 2019. When the repo rate increases, the cost of borrowing for banks also increases, which is passed to their account holders by increasing the interest rate on loans and deposit rates. This also makes borrowing money from the bank a costly affair, which in turn slows down investment and money supply in the market. <div type="image" title="unnamed (5)" msid="92120709" hostid="261" caption="&amp;lt;p&amp;gt;BI India&amp;lt;/p&amp;gt;"></div> As a result, it limits money supply and brings down the purchasing power of consumers, which helps in controlling inflation. The repo rate is reduced when the government intends to infuse money into the market and support economic growth, as it did during the lockdown. In fact, RBI had not increased the repo rate for nearly 4 years until last month. How a small increase in repo rate affects you A small hike in repo rate makes borrowing from the commercial banks expensive. <keyword id="6354730" type="General" weightage="20" keywordseo="home-loan" source="Orion">Home loan</keyword>, vehicle loan, education loan, personal loan, business loan, credit cards, mortgages are all influenced by the rate hike. When the borrowing cost increases, the common man is discouraged from making unnecessary purchases, thereby reducing the demand for goods and services. This kicks off a chain reaction, leading to a reduction in prices and thereby, the inflation. This is simply a game of demand and supply, with the repo rate acting as a catalyst. <div type="image" title="unnamed (6)" msid="92120758" hostid="261"></div> On the other hand, people who have savings and have a fixed deposit, for example, <a href="https://www.businessinsider.in/finance/news/why-a-rate-hike-is-not-all-bad-news-for-you-and-how-you-can-take-advantage-of-rising-interest-rates/articleshow/92029328.cms">will benefit from an increase in interest rates</a>. A poll run by <a href="https://bit.ly/3nD94g5">Stocktwits </a>shows that banking stocks might also benefit from the hike in repo rate. <div type="image" title="Poll Infographics_BI_9 June" msid="92120786" hostid="261" caption="&amp;lt;p&amp;gt;&amp;lt;em&amp;gt;How will banking stocks perform after RBI&amp;#39;s rate hike?&amp;lt;/em&amp;gt; Stocktwits&amp;lt;/p&amp;gt;"></div> Ripple effects of the hike in repo rate When borrowing business loans becomes expensive, businesses either reduce or freeze hiring, leading to unemployment. Consumers also put a pause on buying all luxury items including vehicles, which affects the auto industry. The real estate sector, which was witnessing good pickup in sales due to the low cost of financing, could be impacted by RBI’s rate hike move. As banks increase their interest rate, it will result in a further rise in equated monthly instalments (EMIs) for existing borrowers and <a href="https://www.businessinsider.in/finance/news/home-loan-rates-enter-red-zone-will-dent-affordable-and-mid-segment-sales-the-most/articleshow/92079341.cms">dent new homebuyer’s confidence.</a> Low-interest rates are unlikely to come back as the Indian government predicts that the country’s economy will take at least <a href="https://www.livemint.com/news/india/india-s-economy-to-overcome-covid-losses-in-fy35-recovery-remains-stimulus-dependent-rbi-11651238870034.html">12 years</a> to overcome the setback from Covid-19. It said that the ongoing structural changes catalysed by the pandemic can potentially alter the growth trajectory in the medium-term. Higher interest rates and inflation put the common man in a soup The war in Ukraine significantly increased the common man’s woes. It elevated commodity prices due to geopolitical tension and affected the global supply-chain, tightening financial conditions globally. As a result, due to curbs on imports and high demand for essential commodities, everything from food and beverages to clothing and accessories is expensive today. The common people of India were already struggling to manage their daily expenses with limited purchasing power on a minimum wage. Due to this soaring inflation, consumers are further losing purchasing power, which is a measure of how many goods or services you can buy with a unit of currency, at a <a href="https://www.cnbc.com/2022/05/11/how-fast-does-inflation-cut-buying-power-heres-a-simple-guide.html">faster-than-usual rate</a>. While the current repo rate of 4.9% is still not as high as the pre-pandemic level of 5.15%, the common man will feel the pinch because of higher consumer inflation. On Wednesday, the RBI raised its inflation <a href="https://www.businessinsider.in/finance/news/home-loan-rates-enter-red-zone-will-dent-affordable-and-mid-segment-sales-the-most/articleshow/92079341.cms">projection</a> for the current fiscal year to 6.7%, up from 5.7% predicted in April and 4.5% in February. If the inflation rate continues to increase despite the recent changes in repo rate, RBI will resort to hiking it again in a few months to keep inflation in check.

You Searched For "what is repo rate" and got 13 results

RBI leaves repo rate unchanged. What does this mean for you?

Ira Alok Puranik

RBI keeps repo rate unchanged at 6.5%: What is repo rate and how it affects you

Divyanshi Sharma

Boom or bust — how RBI’s decision to leave rates unchanged affects homebuyers

Ira Alok Puranik

Simply Put: Boom or bust — how RBI’s decision to leave rates unchanged affects homebuyers

Ira Alok Puranik

RBI MPC Meet: Repo rates unchanged at 6.5%, inflation moderating, albeit slowly

Ira Alok Puranik

Explained: Is this the right time to invest in long duration debt funds?

Anagh Pal

With RBI MPC not hiking rates, affordable home buyers have clearer planning trajectory

Anagh Pal

RBI largely expected to hike repo rate by 25 bps in April even as US Fed expected to take a pause

Rounak Jain

RBI’s Monetary Policy Committee keeps repo rate unchanged at 6.5%, for now

Rounak

Katya

Inflation expected to cool down but economists expect another rate hike after January shocker

Rounak Jain

RBI's MPC meeting could throw up a lot more than just a rate hike, say experts

IANS

A Deposit Dilemma — What's the fuss about a crisis in Indian bank deposits? Are mutual fund investments to blame?

Ira Alok Puranik

Explained: How RBI’s repo rate hikes affect consumers

Karuna Sharma

Popular Keywords

Buying Guides