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Impact of Rate Cut on Your Money
The document discusses the impact of recent rate cuts on borrowing and investments, highlighting that corporate borrowing power has increased and that long-term bond funds may benefit. State Bank of India has cut its base rate and deposit rates, leading to expectations of investors moving their money to different debt avenues. The RBI is also reviewing small savings interest rates due to discrepancies compared to bank fixed deposits.
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Impact of Rate Cut on Your Money
- 1. Impact of RateCut on Your Money
- 2. EQUITY Source: Live Mint ImageCourtesy: Google Rate sensitive segments are also likely to benefit. Borrowing power of Corporate (borrowers) increased due to reduction in cost of borrowing.
- 3. DEBT Source: Live Mint ImageCourtesy: Google The RBI has also proposed a two-year roadmap to increase foreign portfolio investor participation in central and state government bonds. Benefits Long-term bond funds and gilt funds. Bank deposit rates have been reduced significantly and can further expect fall in bank fixed deposit (FD) rate which will lead the investors to deploy their money in other debt avenues.
- 4. LOANS Source: Live Mint ImageCourtesy: Google After the announcement of a reduction in repo rate, State Bank of India (SBI), the country’s largest lender, cut its base rate by 40 bps to 9.3% effective 5 October. If you plan to borrow for big-ticket purchases such as a house or an expensive car, a cut of another 30-40 bps on loans will lower your equated monthly installment (EMI). But small purchases on loan, such as white goods, will see little impact
- 5. DEPOSITS Source: Live Mint ImageCourtesy: Google In the policy, the RBI said bank deposit rates have been reduced significantly after it cut rates since January. SBI announced a 25-bps cut on deposit rates effective 5 October. You can expect a further fall in bank fixed deposit (FD) rate. Investor money is likely to move to other debt products or small savings.
- 6. SMALL SAVINGS Source: LiveMint Image Courtesy: Google The RBI also stated that the government will take a relook at small savings interest rates, as these now offer higher interest rates than bank FDs. For example, SBI offers 8% on FDs with maturity of five years and above, while the post office monthly income scheme and National Savings Certificate (NSC) offer 8.5% on five-year deposits. You can expect a fall in interest rates of small savings instrument.
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