RBI rate cut: Deposits to pay less; loans to cost less

The Reserve Bank of India (RBI), on Wednesday, cut repo and reverse repo rates by 50 basis points. The repo rate now stands at 5 per cent and the reverse repo is at 3.5 per cent.

So, what does this mean for you?

Deposits to give lower returns

Chairman of UCO bank, SK Goel, says, "We will announce a deposit rate cut soon, which could be between 7-8 per cent. Deposit rate in the present situation should reasonably be about 7 per cent. However, all banks are looking to the leader i.e. SBI, and SBI is yet to announce a cut on the deposit rates."

The State Bank of India cut its bank deposit rate to 8.1 per cent on Wednesday. What remains to be seen is if they will cut rates further following RBI's announcement.

Home loans to get cheaper, but you might have to wait

While deposit rate cuts will trickle down with immediate effect, cheaper home loans will have to wait for some time. VC & MD, HDFC Ltd. Keki Mistry, says, "Whenever rates fall, it usually takes a couple of weeks for the rates to percolate down to customers."

ED – Finance, DLF, Saurabh Chawla, affirms the same. He explains that customers who take long-term mortgages on their homes may not see much benefit in terms of lower interest rates. But banks take their own time to reduce the long-term interest rates.

Principal Economist CRISIL, DK Joshi, explains that in the next two-three months, banks will start passing on the interest rate cuts to their customers. "But banks may take some time to pass on the benefits because the process is a bit sluggish," he says.

Any more rate cuts?

While the rates have been cut by 50 basis points DK Joshi Crisil Principal Economist expects a further cut in the coming months. He says, "There will be further rate cut action, but it would be in smaller steps. There will be a 50 basis points rate cut again before April."

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