RBI Repo Rate cut

RBI has cut repo rates once again on 4rth Oct and now stands at 5.15%. Repo rate is the rate at which banks borrow from RBI for short term. This is indicator of interest rate in economy.

RBI has indicated further rate cuts in future. Banks are now forced to pass rate cuts to consumers as loans are being linked to repo rate. Past home loans were linked to MCLR of banks which had no control of RBI.

If one links home loan to repo rate benefit will be immense as banks are offering new loan at repo+2.75-3.25%. SBI may give new loans at sub 8% now and that should see further downward revision in Dec after new rate comes in.

One should insist with its banker to link old home loans to repo rate of RBI. If one has 20 year loan outstanding 0.25% reduction in rate will save 10 EMIs or reduce EMI by Rs.1800 per month approx. on Rs.10 lac of loan.

Current scenario also augers well for debt investment as FD rates will also see declining trend. Dynamic Bond funds can be a good option for safe investor or medium term (1-2 year) investor.