The three -day Monetary Policy Committee (MPC) meeting of the Reserve Bank (RBI) has started from 7 April, and its results will be declared on 9 April. This meeting is expected that RBI may cut interest rates for the second time. It is estimated that the RBI may cut the main interest rate up to 0.25% (25 basis points). Due to softening of inflation, this step is considered necessary to promote growth, especially among global economic challenges.
Repo rate cut in February
Earlier, in February 2023, RBI’s Monetary Policy Committee reduced the interest rate by 0.25% to 6.25%. The decision was taken under the chairmanship of the new RBI Governor Sanjay Malhotra, and this was the first time since May 2020 when the interest rate was cut. The repo rate was increased several times since 2023, but this time there is a possibility of another cut keeping inflation under control.
American tariff and its effect
Madan Sabnavis, Chief Economist of Bank of Baroda, referred to the impact of tariffs imposed by American, which will impose tariffs ranging from 11% to 49% on 60 countries including India and China. These changes may affect the country’s growth rate and currency, but experts believe that inflation is under control and cash is stable, which can suit conditions for a reduction of 0.25%.
American tariff as both challenge and opportunity
The American tariff is being seen both as a challenge and opportunity for India. Indian exports can benefit due to higher charges on China, Vietnam, Bangladesh, Cambodia and Thailand, as goods coming from these countries will become expensive in the global market. Rating agency Iqra has also expected a rate deduction of 0.25% at the MPC meeting.
Effect of interest rate deduction
If the RBI reduces the repo rate by 25 basis points, then this rate will come at 6%. The effect of this will be that banks will also have to change 25 basis points in the rate of home loan. For example, if your home loan interest rate is 8.5%, it will decrease to 8.25%. After this change, your EMI will also decrease.
Changes on loans of 30 lakhs
If you have taken a home loan of Rs 30 lakh and the interest rate is 8.5%, then your current EMI will be Rs 26,035. If the interest rate decreases 0.25% to 8.25%, then your EMI will be reduced to Rs 25,562. In this way, you will save Rs 473 every month, and annually you will get a profit of Rs 5,676.
Benefit on loans of 50 lakhs
If you have a loan of Rs 50 lakh and the interest rate is 8.5%, then your current EMI will be Rs 43,391. If the interest rate decreases 0.25% to 8.25%, your EMI will be reduced to Rs 42,603. In this way, you will save Rs 788 every month, and will benefit by Rs 9,456 annually.
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