Your existing loan will not become expensive, nor will your EMI increase. This is because the Reserve Bank of India (RBI) has maintained the interest rates at 6.5%. The Central Bank has not changed the rates for the 11th consecutive time. The past time the interest rate was expanded by 0.25% to 6.5% was in February 2023.
RBI Governor Shaktikanta Das informed about the decisions taken in the Monetary Policy Committee (MPC) meeting on Friday. This meeting takes place every two months.
RBI increased interest rates by 1.10% 5 times since 2020
RBI Governor said that 4 out of 6 members of the Monetary Policy Committee were not in favor of change in interest rates. Due to no change, the Standing Deposit Facility i.e. SDF rate remains at 6.25% and the Marginal Standing Facility i.e. MSF rate and Bank Rate remain at 6.75%.
The Reserve Bank of India (RBI) cut interest rates by 0.40% twice amid Corona (27 March 2020 to 9 October 2020). After this, in the following 10 meetings, the Central Bank expanded interest rates 5 times, made no change four times and once cut it by 0.50% in August 2022. some time recently Covid, the repo rate was at 5.15% on 6 February 2020.
Cash Reserve
The committee has reduced the CRR i.e. cash reserve ratio from 4.50% to 4%. Banks are required to keep a minimum percentage of their deposits as reserves with the central bank. The central bank uses it to control the money supply in the economy. This helps in managing inflation and controlling liquidity.
The collateral free agricultural loan limit was last revised in 2019. Keeping in mind the increase in agricultural input costs and overall inflation, it has been decided to increase the loan limit from Rs 1.6 lakh per borrower to Rs 2 lakh per borrower.
The credit line on UPI was launched in September 2023 and was made available through scheduled commercial banks. Now Small Finance Bank has also been given approval to provide credit line through UPI. This will further deepen financial inclusion.
To prevent and reduce digital fraud, the Reserve Bank has developed an AI based model mulehunter.ai. Approval has been given to provide the line. This will further deepen financial inclusion.
Fight to inflation
Any central bank has a powerful tool to fight inflation in the form of the policy rate. When inflation is very high, the Central Bank tries to reduce money flow in the economy by increasing the policy rate.
If the policy rate is tall at then the credit that banks get from the Central Bank will be costly. In return, banks make loans costlier for their customers. This diminishes money stream in the economy. If money stream diminishes, demand diminishes and inflation decreases.
Additionally, when the economy goes through a terrible stage, there is a require to increment money stream for recovery. In such a circumstance, the Central Bank reduces the policy rate. Due to this, the credit gotten by the banks from the Central Bank becomes cheaper and the customers too get the loan at a cheaper rate.
