1. RBI cuts repo rate by 25 basis points, your home loan, car loan EMIs to come down

RBI cuts repo rate by 25 basis points, your home loan, car loan EMIs to come down

Your loan rates, including home and car loan EMIs are going to come down with the RBI announcing a 25 basis points repo rate cut to 6.25 per cent.

By: | New Delhi | Updated: October 4, 2016 3:49 PM
Your loan rates, including home and car loan EMIs are going to come down with the RBI announcing a 25 basis points repo rate cut to 6.25 per cent. It would now be up to the lenders to take the cue from the RBI announcement and transmit the repo rate cut into actual reduction in lending rates. (Reuters) Your loan rates, including home and car loan EMIs are going to come down with the RBI announcing a 25 basis points repo rate cut to 6.25 per cent. (Reuters)

Your loan rates, including home and car loan EMIs are going to come down with the RBI announcing a 25 basis points repo rate cut to 6.25 per cent. It would now be up to the lenders to take the cue from the RBI announcement and transmit the repo rate cut into actual reduction in lending rates.

Since the new Marginal cost of funds based lending rates (MCLR) is linked to the repo rate it will be a clear signal to lenders to pass on the repo rate cut to their borrowers. Changes in repo rate impacts the lending rates of the bank and MCLR’s monthly reporting. This, in effect, would mean banks would now be more or less mandated to pass on benefits of rate cuts to borrowers.

In fixing their MCLR, banks take into account their cost of maintaining cash reserve ratio (CRR), marginal cost of funds, interest rates offered on savings, current and term-deposit accounts, cost of borrowings including short-term borrowing rate which is repo rate and long-term borrowing rates and return on networth.

The decision to reduce the repo rate, the first cut announced by the RBI after April 2016, was taken after a unanimous decision by the newly constituted six-member Monetary Policy Committee (MPC) constituted by the government to advice the RBI on monetary policy issues including its stance on kep policy rates. It is also the first credit policy after Urjit Patel took over as RBI Governor.

The rate cut comes in the wake of consumer price index based (CPI) inflation coming down to 5.1 per.

The RBI has in the past often pointed out that banks have been slow in transmitting its policy rate reductions. However, it has also pointed out that it would not like to interfere with the commercial decision of banks.

Please Wait while comments are loading...

Go to Top