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RBI keeps repo rate unchanged at 6.25%

The Reserve Bank of India has left the repo rate unchanged at 6.25%. This comes as a surprise as many economists had expected the central bank to cut the rate by 25 basis points during this bi-monthly review. But the Monetary Policy Committee (MPC), which is a six member body, voted unanimously in favour of holding the rate for the time being.

The RBI has not only taken into consideration global factors such as crude oil prices, it has also factored in inflation and the recent demonetization drive while making this decision. The central bank will take into consideration the impact of demonetization on the economy of the country before making another cut.

The repo rate is the rate at which the RBI lends to all the other banks. The last rate cut was announced in October 2016 when the bank cut the key lending rate by 25 basis points. This was the lowest the repo rate has been in the last 6 years.

Home loan EMIs are determined based on the repo rate. If the key lending rate goes up, the home loan EMIs also tend to go up and vice versa. Since the rate cut has been put on hold for now, home buyers might think that they will not stand to benefit since there is no cut. But that is not the case. Because of demonetization, there is a lot of liquidity flowing into the banks which has led to some banks slashing interest rates all on their own. But the banks are yet to pass on the benefits of the previous rate cuts by the RBI, so there is still hope that the banks will slash the home loan EMIs further.

Kavitha Ravi for IndiaProperty.com

Image: By BengaliHindu (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

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