The Reserve Bank of India (RBI) has maintained the repo rate at 6.5% for the tenth consecutive time, shifting its stance from “withdrawal of accommodation” to “neutral.” This adjustment signals a potential for future interest rate cuts, which could have significant implications for borrowers, savers, and investors.
Impact on Borrowers: Home Loans
For home loan borrowers, the unchanged repo rate means that Equated Monthly Installments (EMIs) will remain stable for now. Adhil Shetty, CEO of Bankbazaar, indicated that any potential rate cuts may not occur until December, contingent upon inflation levels. He mentioned, “In the meantime, EMIs will remain at their current levels.” Anuj Puri from ANAROCK Group views this as favorable for homebuyers, noting that the steady interest rates could stimulate demand during the festive season.
With housing prices having surged by 23% in major cities during Q3 2024, maintaining loan rates might encourage quicker sales in Q4. Nitin Bavisi, CFO of Ajmera Realty, emphasized that the combination of unchanged rates and surplus liquidity fosters a positive sentiment among homebuyers, enhancing their purchasing power as the festive season approaches.
Impact on Savers: Fixed Deposits
For those holding fixed deposits (FDs), the RBI‘s neutral stance suggests that current high FD interest rates may not persist. Shetty advises savers to lock in these attractive rates before they potentially decline. He remarked, “Now is the time to secure your returns while rates remain high”. Falling inflation could lead to an eventual rate cut by the RBI in the coming months.
Impact on Investors: Mutual Funds
Debt Mutual Funds
The prospect of a rate-cut cycle is likely to benefit bond markets. Mahendra Kumar Jajoo from Mirae Asset Investment Managers noted that the neutral stance indicates possible rate cuts by early 2024, with a cumulative reduction expected between 50-75 basis points. As interest rates decrease, the value of bonds in debt mutual funds is anticipated to rise, resulting in better returns for investors. Anurag Mittal from UTI AMC highlighted that the RBI’s confidence in stable inflation paves the way for policy easing, which would be advantageous for both bondholders and long-term debt fund investors.
Equity Mutual Funds
For growth-oriented investors, equities and equity mutual funds are positioned favorably due to controlled inflation and ongoing economic recovery. Shetty believes equity funds offer a solid option for long-term investors as businesses are projected to perform well soon.
Conclusion
The RBI’s decision to keep the repo rate steady while shifting its stance to neutral reflects a cautious optimism about India’s economic landscape. For borrowers, this means stable EMIs for now; savers should act quickly to secure high FD rates; and investors may find opportunities in both debt and equity markets as potential rate cuts loom on the horizon. As stakeholders monitor inflation trends and economic indicators closely, future decisions by the RBI will be pivotal in shaping financial strategies across these sectors.
