In FY2024, the regulator held its first bi-monthly RBI monetary policy committee on 6th April 2023 and decided to remain unchanged with repo rates which stood at 6.50 percent. However, certain experts highly expected that repo rates might hike by at least 25 BPS due to inflation remaining above the comfort zone of RBI, i.e., 6 percent.
Now that it remains unchanged, let’s understand how it will impact your personal finance in the coming future.
When it comes to the economy, one of the most closely watched indicators is the interest rate set by central banks. This rate significantly impacts the cost of borrowing for consumers and businesses and can have far-reaching effects on the overall health of the economy. However, there are times when central banks decide to keep interest rates unchanged.
READ MORE: RBI Monetary Policy: 6 key highlights from the central bank's MPC meet
Why does the RBI choose to remain interest rates unchanged?
One reason is to maintain economic stability. If the economy is already performing well, central banks may decide that it's best not to make any changes that could disrupt the status quo. Additionally, if inflation is under control and the economy is not overheating, there may not be a need to adjust interest rates.
How will it affect personal finances?
Here are a few impacts you may see on your personal finances-
Stable borrowing costs
One immediate effect is on the cost of borrowing as it will remain consistent for a particular period of time, at least till MPC. If interest rates remain the same, the cost of borrowing money from banks and other lenders will not change, which means that if you have taken a loan with fixed interest rates, you will not see any changes to their monthly installments and loan tenure.
A relief to floating interest rate loans
Similarly, if it is a case of variable rate loans, you may not see any immediate impact on their monthly installment, although this may change if interest rates rise. You will be able to stick to your budget, however, it is always better to be prepared for emergencies and have extra money for unexpected scenarios.
Another way that no change in interest rates can affect us is through the stock market. If interest rates are expected to remain the same, it can stabilise the volatility of the stock market, as you, as an investor, may be more willing to invest in stocks when they believe that interest rates will remain low and the economy will remain stable.
READ MORE: RBI Policy: It's just a pause, not a cut; what should your market strategy be?
Increase inflation further
However, it's important to note that there may also be some negative effects of no change in interest rates. For example, keeping interest rates low for too long can lead to inflation and other economic imbalances. This can be especially concerning for individuals on fixed incomes, as the cost of living may rise faster than their income.
If inflation pushes further, and interest rates are also reducing, you might be left with less money than before since interest rates on fixed income securities also give lower returns, which could be a probable side effect of no change in interest rates by RBI.
No change in interest rates by central banks can positively or negatively affect us as individuals and as a society. While it can provide stability to the economy and the stock market, it's important to consider the potential long-term effects of low-interest rates. As always, staying informed and making informed financial decisions based on your circumstances and goals is important.
Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com
Disclaimer: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment-related decision.