Tag: repo rate

RBI Monetary Policy Meeting Highlights: Here’s the impact analysis by top economists

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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RBI Monetary Policy Meeting Live: Reserve Bank of India (RBI) Governor Shaktikanta Das announced the policy decision keep repto rate unchanged at 6.5 percent, in line with CNBC-TV18 poll projection. The FY24 inflation projection was revised upwards to 5.4 percent from 5.1 percent earlier. Following the announcement, Nifty Bank has fallen more than 300 points off highs. RBI Monetary Policy Meeting Live

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How to choose the right home loan tenure that suits your pocket

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Choosing the right home loan tenure is crucial to ensure that financial situation of the borrower remains stable throughout the repayment period. This is more important at a time when borrowers are already reeling under the pressure of lengthening loan tenures and rising interest rates due to Reserve Bank of India’s (RBI’s) repo rate hikes. Before hitting the pause button on this hike for the second time in its last policy, the central bank raised the repo rate cumulatively by 250 basis points since May 2022.

For most banks, the external benchmark to which their home loans are linked is the repo rate. So, with the hike in repo rate, all existing home loans on floating rates of interest became expensive.

Currently, the repo rate stands at 6.5 percent. This is the second incidence when the RBI paused the rate. This is good news for home loan borrowers as it signals that interest rates are stabilising. However, the best is yet to come when RBI starts cutting the rate.

So, how can borrowers choose right home loan?

Let’s look at some of the factors:

Consider income and expenses

The most important factor in determining home loan tenure is the ability to afford the monthly EMIs.

“The income will dictate how much one can afford to pay each month and the expenses will determine how much he/she will have left over after paying for necessities like food, housing and transportation. If the borrower has a high income and low expense, he/she may be able to afford a shorter tenure with higher EMIs. However, if the borrower has a lower income or higher expense, he/she may need to choose a longer tenure with lower EMIs,” said Pramod Kathuria, Founder & CEO at Easiloan.

Think about retirement goals

When borrowers take a home loan, they are essentially taking on debt that they will have to repay over time. This means that they will have less money available to save for retirement.

“If borrowers are planning to retire early, they may want to choose a shorter tenure so that they can pay off the debt sooner and start saving more for retirement,” Kathuria told CNBC-TV18.com.

Also, consider long-term financial goals 

Borrowers should check how home loan fits into their overall financial plan.

“Whether it’s early retirement or upcoming major expenses, such factors will influence the tenor they choose. To get an estimate of the monthly equated monthly installment (EMI) for different loan tenure, borrowers can utilise online home loan EMI calculators. They can adjust the tenure until they find an EMI that aligns with their budget,” said Kamaljeet Rastogi, Chief Executive Officer, SahiBnk, Powered by Manipal Business Solutions.

Factor in the interest rate

The interest rate on the home loan will also affect the amount of money borrowers pay in total over the life of the loan.

“A higher interest rate will mean that borrowers pay more in interest over time, so they may want to choose a shorter tenure to save money on interest,” Kathuria said.

Compare different loan options

There are many different home loan options available, so it is important to compare different loan terms and interest rates before making a decision.

“Borrowers can use a home loan calculator to compare different options and see how much they will have to pay in total over the life of the loan.

Plan for contingencies

Borrowers should also anticipate potential changes in their financial situation, such as job changes, future expenses, or unforeseen circumstances.

“Choose a tenure that provides flexibility and allows to handle such situations without significant stress,” Rastogi told CNBC-TV18.com.

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RBI MPC Meeting Highlights | Nearly 85% of Rs 2,000 notes have come back as deposits to banks, says Shaktikanta Das

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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RBI Monetary Policy Meet 2023 Highlights: Reserve Bank of India (RBI) Governor Shaktikanta Das announced on June 8 that after three days of deliberation, its Monetary Policy Committee meeting has decided to keep the key policy repo rate unchanged at 6.5 percent. This is in line with the CNBC-TV18 poll of economists’ forecast which had projected status quo as inflation remains within the comfort zone of the central bank. Track RBI Monetary Policy LIVE updates here

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Even after RBI hits pause, fixed deposit rates may rise — What should be your investment strategy?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India (RBI), in its bi-monthly monetary policy, recently decided to keep the repo rate unchanged, which suggests that fixed deposit (FD) interest rates are not likely to increase further. However, experts say that FD rates are influenced by several factors including repo rate, the gap between the credit growth rates, deposit growth rates and overall liquidity in the banking system. This means that a pause in the repo rate doesn’t necessarily mean a hike in FD interest rates would halt immediately.

The silver lining for investors

According to Naveen Kukreja, Co-founder & CEO of Paisabazaar, banks would usually continue to increase FD rates as long as their credit growth rate is significantly higher than the deposit growth rate, to attract more deposits that can be used to lend out.

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“Also, while the pause in repo rate should lead to a pause in the increasing interest rates for loans, the same cannot be said with certainty for FD interest rates. Even during periods of rising policy rates, there is often a time lag between the rising policy rates and its transmission to FD rates,” Kukreja told CNBC-TV18.com.

On top of this, the current FD rates are still appealing enough for investors to consider them as an investment option.

The strategy

Regardless of changes in the repo rate, Kukreja said that those with existing FDs should continue with their FDs till maturity.

“Opt for a premature FD closure only if there is a significant gap between the effective rate on their existing FD and rates on their new FD. Do not forget to factor in the premature withdrawal penalty while calculating the effective rate on your existing FD,” he said.

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For those who are planning to open fresh FDs, they should compare FD rates from as many banks as they can. Currently, several small finance banks along with a few private sector banks are offering the highest FD slab rates of 7.5 percent or above.

“Decide on the tenure based on investment horizon and FD slab rates. Opt for longer tenures only if its rates offered are significantly higher than medium-term or shorter tenures,” Kukreja told CNBC-TV18.com.

Notably, deposits up to Rs 5 lakh in all scheduled banks, which includes small finance banks, are covered under the Depositor Insurance Program of DICGC, an RBI subsidiary. This insurance program covers each depositor of each scheduled bank for cumulative deposits (including fixed, current, savings and recurring deposits) of up to Rs 5 lakh.

Those seeking highest possible capital protection on their deposits can choose to spread their deposits with multiple scheduled banks to ensure the cumulative deposit with each scheduled bank does not cross Rs 5 lakh.

Also, one does not know whether the rate hike cycle has already ended or will continue for more time to come. Another alternative, therefore, is to opt for fixed deposit (FD) laddering.

Fixed deposit laddering is a process of spreading investment in FDs over multiple maturity tenures or maturity buckets, whereby investors hold the chance to earn a higher return and even address the liquidity needs.

Explore other options

While FDs may be suitable for investing some amount of savings as a safety margin, Shiv Parekh, Founder at hBits said that consumers should also explore new-age investment options that are asset-backed and can combat growing inflation.

“It is advisable to conduct a net benefit analysis before making any investment decisions. Retail investors today seek steady investment options that offer considerably good returns,” Parekh told CNBC-TV18.com.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI hits pause button, but what about already struggling home loan takers — here’s some strategies to lower EMI burden

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Borrowers can heave a sigh of relief as Reserve Bank of India (RBI) kept the repo rate hike unchanged at 6.50 percent in the first bi-monthly monetary policy review of the financial year 2024. This comes at a time when borrowers are reeling under the pressure of lengthening loan tenors and rising interest rates. Before hitting this pause button, the central bank raised repo rate cumulatively by 250 basis points to 6.50 percent since the beginning of the rate hike cycle in May 2022.

For most banks, the external benchmark to which their home loans are linked is the repo rate. So, with the hike in repo rate, all existing home loans on floating rates of interest became expensive.

Decoding RBI’s decision 

After raising interest rate by a cumulative 250 basis points or 2.5 percent in 11 months, RBI on Thursday unexpectedly kept benchmark rate unchanged as global banking woes added uncertainty to the economic outlook. While they have kept the rate unchanged they have maintained that they are ready to act whenever required to combat inflation.

This means that if necessary MPC will not hesitate to take further action, which means that it might be a temporary pause of the current rate hike cycle if inflation print especially core inflation remains elevated.

However, the key point now is that borrowers can assess their current liabilities in the face of the 2.5 percent increase in the last one year and devise strategies to optimise overall interest outflow and tenor increases, said Adhil Shetty, CEO at BankBazaar.com.

Current home loan rate scenario

According to Shetty, it is important to understand that a 2.5 percent hike in repo rate implies that the equated monthly installments (EMIs) for borrowers have gone up by approximately 16 percent in case of a 15-year loan, 20 percent in case of a 20-year loan, and 26.5 percent in case of a 30-year loan.

Here’s a table showing increasing EMIs on Rs 50 lakh home loan (with different increased rates scenario):

(Note: The outstanding tenor is 15 years (180 months and original interest rate is 7 percent | Source: Bankbazaar)

And, how this would function in case EMI is kept same and tenure is increased.
Let’s take a look:

(Note: The outstanding tenor is 15 years (180 months and original interest rate is 7 percent | Source: Bankbazaar)

Many borrowers, especially those at the beginning of their loans have also seen their tenors increase instead of decrease over the last one year despite timely repayments.

This means borrowers are already reeling under the pressure of lengthening loan tenors and rising interest rates. The point of easy repayments has already passed. There’s no way borrowers can maintain their EMI unless they have been repaying aggressively.

At the same time, spreads on the benchmark rate have been falling over the last one year, from as high as 3.5 percent before the pandemic to 1.9 percent currently, as per Shetty.

According to Neelabh Sanyal, Co-Founder and COO at Kuvera.in, borrowing capacity for new home loans has also decreased, resulting in reduced disbursals during this period.

The way outs

Banks typically have a tenure of up to working age of 60 years in case of home loan, hence increasing the tenure might be challenging given the number of hikes in recent months. And, paying higher EMIs may not be feasible for everyone.

“So, borrowers whose loan is 2-3 years old or older, they stand to gain a good reduction on their interest rate on refinancing if they have a good repayment track record and credit score,” Shetty said.

Given the high interest scenario, the best option in such a case is to refinance at a lower rate and retain a higher EMI. This will help borrowers keep down the costs of borrowing.

Home buying sentiments

Shishir Baijal, Chairman and Managing Director at Knight Frank India said that the pause in repo rate hike is a big cheer for the real estate industry.

“The sector has weathered multiple home loan interest rate increases from a low of 6.5 percent to 8.75 percent, supported by favourable house purchase affordability and the strong desire towards home ownership. Therefore, a pause in any further rise in the lending rates should support the existing growth momentum in the housing sector,” Baijal said.

According to Anuj Puri, Chairman at ANAROCK Group, this particularly gives relief to affordable and mid segment homebuyers who feared a possible rate hike today, making property buying via home loans even harder.

Affordable housing has been under stress since the pandemic. This segment (units priced <Rs 40 lakh) saw its overall sales share dip between 2019 and 2022 and further in first quarter of 2023.

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RBI’s rate pause good news for long duration debt funds: MF managers

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) has paused its rate-hike cycle by keeping the key lending rate at 6.5 percent. Change in policy rates has an indirect impact on debt mutual funds. The prices of bonds fall when the rates go up as bond yields and prices have an inverse relationship. Hence, a pause on rate hikes is in a way good news for debt mutual funds.

Mutual fund managers say that the move to pause rates came as a surprise to the bond market. Bond market participants cheered the move. Recent fall in UST yields have also improved sentiment in the bond market. Fund managers say that medium to long duration schemes can be a good bet in this scenario.

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“MPC’s unanimous decision to pause has been surprising. Bond yields have declined sharply. We expect the yield curve to steepen from here in the medium-term. We prefer 5- to 10-year segment of the yield curve for its liquidity and relative value, “ said Dhawal Dalal, Chief Investment Officer – Fixed Income, Edelweiss Asset Management Limited.

Mutual fund managers say that investors should not expect rates to support debt returns because the pause by RBI can be short lived. RBI Governor has said that, “It is a pause, not a pivot” on rates.

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Shaktikanta Das said the repo rate has been kept unchanged on basis of macroeconomic and financial conditions and that the RBI remains focused on withdrawal of accommodation. However, for bond markets, the pause has come as a pleasant surprise.

“Bond markets have witnessed a fall in yields (5-15 bps) across the curve. Going ahead we may see overall yield curve trajectory going downwards albeit slowly, with flattening bias. We expect 10 yr benchmark g-sec trading in 7.10 percent-7.30 percent range near future and then may move towards 7 percent over next 6 months. We expect debt funds to do well as yields move downwards. Longer duration funds generally augur well in such cycles,” said Akhil Mittal, Senior Fund Manager, Fixed Income, Tata Asset Management.

After two years, fund managers have moved from their advice of sticking to shorter duration funds. They believe that the risk-reward ratio has now shifted towards longer duration funds.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Gold will see further growth ahead, says economist as RBI repo rate remains unchanged

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Gold has now reached its 52-week high and will see further growth ahead, said Peter Cardillo, Chief Market Economist at Spartan Capital Securities, on Thursday. The statement came after the Reserve Bank of India (RBI) Governor Shaktikanta Das announced that the repo rate will remain unchanged at 6.5 percent.

Peter Cardillo, Chief Market Economist at Spartan Capital Securities, said, “We are seeing gold has reached a new 52-week high this year and we are probably going to see further gains ahead. My short-term target is around $2,075 per ounce, perhaps then a pullback and we are on our way close to $2,200-2,400 per ounce.”

Globally, gold prices slipped from one-year highs on Thursday as the dollar regained some ground. On MCX, domestic gold prices stood at Rs 60,718 per 10 grams. This was Rs 138 (or 0.23 percent) down from the last close.

On April 5, gold prices were trading near all-time highs after touching fresh peaks on Tuesday. The yellow metal was trading at around Rs 61,130 per 10 grams on Wednesday.

Gold prices slumped as the dollar index rose 0.2 percent, making bullion expensive for overseas buyers. At around 12:15 pm, the US Dollar Index Futures was reeling at 101.660 – up by 0.1 percent.

Cardillo’s statement came as markets see a 53.8 percent chance of the Fed standing pat on interest rates in May, according to CME’s FedWatch tool.

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RBI keeps repo rate unchanged contrary to market and economist expectations

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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RBI Governor Shaktikanta Das has announced that the Indian central bank will not hike its lending rate (repo rate) contrary to what market watchers and economists were expecting. A CNBC-TV18 poll had seen 90 percent of economists predict a 25 bps rate hike. Thus, the lending rate stands at 6.5 percent as announced on Feb 8 in the previous policy.

Governor Das reasoned that the global economy has seen an uptick in recent times, as well as inflation, has started to moderate.

“The headline inflation is expected to moderate in 2023-2024. MPC will not hesitate to take further action in future meets,” mentioned Das.

The Monetary Policy Committee also voted by a 5:6 majority to remain focussed on the withdrawal of accommodation to ensure inflation aligns with the target while focussing on growth.

The standing deposit facility (SDF) rate is unchanged at 6.25 percent. Moreover, the marginal standing facility (MSF) and bank rates have also been left unchanged.

The market has reacted positively to this news and as seen in the graph below recovered from its lows. At the time of publishing the Nifty50 has turned positive and is 30 points in the green.

“The RBI will adopt a nuanced approach to liquidity management. Will ensure completion of government borrowing programme in a non-disruptive manner,” said the Governor.

For the current financial year, which started just a few days back, the RBI Governor projected a growth rate (GDP) of 6.5 percent.

For the same period, the inflation projection has been kept at 5.2 percent.

Catch LIVE updates on RBI’s MPC Meet, reactions and more here

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RBI MPC Meet Highlights | Experts say RBI may not be in a big hurry to hike rates next year

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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RBI MPC Meet Live: Reserve Bank of India has decided to keep the  repo rate unchanged at 6.5 percent, Governor Shaktikanta Das  announced on April 6, after a two-day monetary policy (MPC) meeting. Most economists (90 percent) CNBC-TV18 surveyed expected the central bank to continue its fight against inflation and follow the US Federal Reserve globally by hiking the lending rate by 25 basis points. However, Das said, MPC decided unanimously to keep policy repo rate unchanged in this meeting with readiness to act should the situation warrant. Get RBI Governor Shaktikanta Das’ speech highlights here

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These lenders are offering over 9% interest rates on fixed deposits

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Lenders, including banks, small finance banks and non-banking financial companies (NBFCs) have been raising their fixed deposit (FD) rates since May 2022 after the Reserve Bank of India (RBI) started hiking the repo rate. There have been six straight rate hikes by RBI so far, resulting in a total repo rate hike of 250 bps. Consequently, banks have followed suit and raised interest rates, with some offering even above 9 percent of rate on their FDs.

Here’s a look at lenders that are currently offering over 9 percent of interest rate:

Unity Small Finance Bank

The bank offers fixed deposits with interest rates up to 9 percent to general public and up to 9.50 percent to senior citizens. The highest interest rate of 9.50 percent to senior citizens is offered on tenure of 1001 days. The bank further offers 9.25 percent interest on tenure of 181-201 days and 501 days to senior citizens.

Here are the tenures on which lender is offering over 9 percent rate:

Shriram Finance 

Shriram Finance offers interest rates of up to 9.10 percent on fixed deposits, including 0.50 percent interest for senior citizens and 0.10 percent for women. In addition, all renewals are subject to an additional 0.25 percent.

For a 12-month FD, it offers 7.34 percent to regular citizens and 7.84 percent to senior citizens. For 18, 24 and 31 months, the lender offers 7.48 percent, 7.76 percent and 7.90 percent respectively. The lender offers 7.95 percent, 8 percent, 8.04 percent and 8.18 percent on FD tenures of 36, 42, 48 and 60 months.

Fincare Small Finance Bank

Fincare Small Finance Bank offers high fixed deposit rates of up to 9.01 percent. The bank provides FD interest rates to the general public between 3 percent to 8.41 percent whereas, for senior citizens, it is between 3.60 percent to 9.01 percent.

Here is tenure on which lender is offering over 9 percent rate:

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow