The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) will announce its resolution under the first bi-monthly monetary policy statement for 2019-20 on Thursday. Economist and analysts expect a rate cut. The central bank is also expected to take a relook at its inflation numbers, growth target and the liquidity framework. Here is what you need to watch out in the RBI monetary policy announcement and its impact your money:
A cut in benchmark rates likelyMost economists predict a 25 basis points (bps) cut in repo rate, according to a Bloomberg survey. One bps is one-hundredth of a percentage point. Repo rate, the key policy rate, is the rate at which the central bank lends money to the banks. “Our base case expectation is of a 25 bps repo rate cut along with a dovish commentary to suggest more room to cut in the coming months,” said Arvind Chari, head –fixed
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) will announce its resolution under the first bi-monthly monetary policy statement for 2019-20 on Thursday.(REUTERS)
The impact: Despite rate cut, if the liquidity remains to be tight, you will not see any change in the deposit rate. Considering that tight liquidity is visible in high credit-deposit ratio, depositors haven’t seen a change in rates yet. If liquidity eases, you will see your FD rate fall.
Linking external benchmark rate to loans yet to happen: The RBI has in its December policy announcement had said that it is considering linking external benchmark rate such as olicy repo rate, 91 days treasury bill yield, 182 days treasury bill yield or any other benchmark market interest rate produced by the Financial Benchmarks India Pvt. Ltd to your home loan, car loans and personal loan instead of using MCLR. However, in the February policy announcement, the RBI said the proposal is under review. RBI governor Shaktikanta Das had then said it is currently under examination.
The impact: Even before the RBI’s announcement, State Bank of India, the country’s largest lender, has already linked external benchmark rate to its short-term loans and savings account above Rs 1lakh. If you loans get linked to external benchmark rate, you will see interest rate on your loans move faster than it does currently. Banks will also look at linked deposit rates to external benchmark rates