Your loans may get cheaper, deposits fall further
This week when the RBI’s monetary policy committee meets review, you can expect a rate cut.Updated: Aug 06, 2019, 10:15 IST
If you are planning to take a loan, you are likely for some good news. But if you are a depositor, you may want to reconsider your fixed deposits. This week when the Reserve Bank of India’s (RBI) monetary policy committee (MPC) meets for the bi-monthly monetary policy review, you can expect a rate cut, according to experts.
Rate cut likely
Economists expect a 25 basis points cut in repo rate. According to a State Bank of India (SBI) report, against this global and domestic economic backdrop the RBI should cut repo rate by 25 bps. “The current rate cut cycle is expected to continue and we expect RBI to go for 50-75 bps rate cut in the entire cycle, including the 25 bps cut expected in the upcoming policy. We expect the terminal repo rate to go to 5% (if not lower) in this rate easing cycle,” said Soumya Kanti Ghosh, group chief economic adviser, SBI in a note. He further added that banks will cut deposit rates further and lending rates will witness a faster incremental fall in coming months.
According to Bank of America Merrill Lynch report, escalation of US-China trade war, global rates cycling down on Fed cut, oil prices, benign inflation outlook and time running out for lending rate cuts as busy industrial season starts in October are compelling reasons for a 35 bps RBI rate cut. Meanwhile, the overall liquidity surplus in the banking system widened.
According to Care Rating report, the widening liquidity in the banking system can be attributed to the lower lending by banks and higher inflow of deposits in recent months despite the higher government borrowings in the current fiscal (13% increase y-o-y). According to Capital Economics report, investment slump has bottomed out. “Investment growth collapsed to a near four-year low in the first quarter. While a spectacular rebound will remain elusive, investment should recover gradually over the coming quarters as election-related uncertainty clears and funding costs drop following the RBI’s cuts to policy rates this year,” said Shilan Shah, senior India economist, Capital Economics, in a note.
What to expect
Financial institutions have already started reducing lending and deposit rates. Banks including SBI have cut interest rate on fixed deposit of certain maturity baskets. Besides banks housing finance company HDFC Ltd has also cut home loan rates. If you are planning to take a loan opt for a floating rate loan and avoid fixed rate loans considering that it is falling rate environment. In case you are planning to invest your money in fixed deposit, check for the tenure and shop around for better interest rate and lock-in your money.