Loans Will Be More Cheap: Here's Why

The Reserve Bank of India (RBI) in its three-day long Monetary Policy Committee (MPC) announced several big decisions including the repo rate cut, reduced inflation rate forecast as well as a reduction in GDP growth.

While the repo rate has been reduced by 25 basis points, the inflation projection has been reduced to 4% from 4.5% and the GDP growth forecast has also been reduced by 20 basis points to 6.5 per cent from 6.7% due to global trade and policy uncertainties.

The MPC has also taken an 'accommodative' policy stance, providing room to support growth and easing the inflation-marked trajectory for people taking loans.

Why Will Loans Become Cheap?

Since the central bank has reduced the repo rate, the floating rate of interest as well as EMIs for these loans will get reduced, with several banks either providing partial or full benefits to its borrowers.

According to financial expert Kishore Subramanian, "there is headroom for another two rate cuts of 25 basis points each."

This means that EMIs and interest rates will further drop. For instance, a borrower has borrowed a Rs 50 lakh home loan from a bank at an interest rate of 8.70% over 30 years and the current EMI is Rs 39,157.

Since the interest rate has dropped by 25 bps to 8.20%, the revised EMI will be Rs 38,269, by way of which the borrower can now save Rs 888 every month.

While these are rough estimates, the final savings of the investments shall depend on the particular banks.

Reduced Inflation And GDP Growth: Expert Decodes

Kishore Subramanian added that the MPC reducing the inflation to 4% is indicative of the fact that "food inflation is substantially down."

"This means that the RBI is clearly saying that we have the ability to reduce interest rates as inflation has gone down," he said, adding that from here on "inflation is expected to further reduce."

He further noted that the central bank is currently focusing on GDP growth.

Also Read: RBI Repo Rate Cut By 25bps: How Will RBI Rate Cut Impact Your EMIs?