The Reserve Bank of India has kept the repo rate unchanged for the third time in a row to ensure borrowing costs do not go overboard and economic growth also continues without any disruptions. However, there is no guarantee how long the rate will remain unchanged. Borrowers and investors seem to be cautious about it.

When the repo rate does not increase, it indicates that the RBI has chosen to maintain stability in the interest rate environment.

Adhil Shetty, CEO, Bankbazaar.com, says, “The decision by the Reserve Bank of India to keep the repo rate unchanged at 6.5% can indeed create a favourable environment for investors. RBI has not increased the repo rate in its three consecutive monetary policy meetings to support economic growth and create a conducive environment for both borrowers and investors. A consistent repo rate signifies a stable interest rate environment. For investors, this stability offers predictability in borrowing costs and potential returns on investments. Investors can make informed decisions without the worry of sudden interest rate fluctuations affecting their investment strategies.”

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This decision can have implications for various aspects of the economy, including borrowing costs, investment decisions, and overall economic growth. Here’s a strategy you might consider during such a period:

Review Existing Debt and Investments

Borrowers: If you have existing loans with floating interest rates, your interest costs may not rise during this period. However, it’s a good opportunity to assess your financial situation and consider prepaying higher-cost loans, if possible.

You must use this opportunity to partially prepay your loan to avoid higher interest burden if more hikes in the repo rate take place.

Investors: Review your investment portfolio, especially fixed-income instruments like bonds or debt funds. Since interest rates are not increasing, yields on existing fixed-income investments may remain stable. Adjust your investment strategy based on your risk tolerance and goals.

Assess Your Financial Goals

Take this time to review your short-term and long-term financial goals. Are you saving for a major purchase, retirement, or education? Adjust your savings and investment strategy based on your objectives.

Consider Long-Term Debt

If you’re planning to take on new debt, such as a home loan or business loan, and you expect the stable interest rate environment to continue, it might be a suitable time to consider longer-term loans.

Focus on Savings and Investments

Utilise the period of stable interest rates to strengthen your savings and investment efforts. Consider increasing contributions to your savings and investment accounts to take advantage of the consistent interest rate environment.

Shetty adds, “For FD investors, this is the best time to park their funds at higher interest rate FDs as some of the banks have already begun decreasing the interest on FDs. Locking in your FDs at interest rates higher than 7 or 8 per cent will give good corpus to senior citizens who earn .50 basis points higher interest than others. The best-paying tenors are seen to be between 1 and 3 years.”

Diversify Your Investments

A stable interest rate environment can provide a good opportunity to diversify your investment portfolio. Explore different asset classes, such as equities, real estate, or international investments, to reduce risk and potentially improve returns.

Maintain an Emergency Fund

Regardless of interest rate movements, having an emergency fund is crucial. This fund can provide a safety net in case of unexpected expenses or emergencies. You must have at least 3-6 months of corpus to sustain your expenses whenever a financial emergency strikes.

Remember that interest rate movements are just one factor in your overall financial landscape. Your strategy should align with your broader financial goals, risk tolerance, and market conditions. Adjustments may be necessary based on changes in the economic environment, so regular review and flexibility are key components of a successful financial strategy.