RBI's monetary policy announcements: Here's how it may affect your money

The Reserve Bank of India’s Monetary Policy Committee on February 5 decided to keep the key policy rates unchanged while maintaining an accommodative stance. The central bank kept the repo rate unchanged at 4% and reverse repo at 3.35%.

Money9 tries to simplify key monetary policy announcements which matter to you. Read on:

1) What is repo and reverse repo rate mean?

Repo rate means the rate at which commercial banks borrow money by selling their securities to the central bank. It is one of the major tools which help of RBI to maintain liquidity and keep inflation under control. On the other hand, the reverse repo rate is the rate at which commercial banks park their excess money with the central bank, usually for a short-term.

2) What does a status quo mean for investors and borrowers?

With RBI maintaining status quo on rates, hopes of an immediate cut in equated monthly instalments (EMI) is less. However, home loans are hovering at record low levels and some lenders are offering at less than 7%. At the same time, a status quo in policy rate means than banks may not cut interest rates on fixed deposits.

“Advance estimates indicate that the Indian economy may contract as much as 7.7% in FY2020-21 due to the pandemic. In such a scenario, one would usually expect RBI to cut repo rates in order to boost consumption. Certainly, the real estate industry always aspires for reduced interest rates. Housing demand is reviving, and this demand needs to be fostered. However, the RBI’s current stance is absolutely justified, given the unique circumstances. We are certain that rates will be adjusted favourably once the pandemic exigencies ease,” said Anuj Puri, Chairman, ANAROCK Property Consultants.

3) Retail investors can directly access the bond market

The RBI has opened the doors for retail investors to directly invest in government securities online, which will place them in direct competition with other banks in the space of retail savings deposits.

4) RBI will integrate all Ombudsman schemes

The RBI has given strong indications in recent times of its commitment to revamp the grievance redressal system. Currently, the alternate dispute resolution framework consists of three separate Ombudsman schemes for banks, NBFCs and digital transactions.

“With this integration, retail consumers now have one centralised point for grievance redressal for the majority of grievances around retail banking. Having a common Ombudsman scheme means you now have one platform to convey complaints regarding deficiency of services associated with most products and services offered by the bank or NBFC. This will take away the confusion about whom to reach out to for grievance redressal in case of problems especially with any and all forms of digital transactions, from credit and debit cards to mobile and internet banking, and even wallet and UPI transactions,” said Adhil Shetty, CEO, BankBazaar.com.

5) TLTRO on tap for NBFCs

In October, banks were allowed to take three-year loans at the repo rate in order to finance stressed sectors. The banks could use this liquidity to invest in corporate bonds, commercial papers, and non-convertible debentures in these sectors. Now, the RBI has made the TLTRO On Tap facility available to NBFCs in order to ease the availability of credit in these sectors. “The decision has positive implications for the auto and real estate sectors since NBFCs heavily finance both these sectors and now more credit will be available for both retail customers intending to invest as well as for the manufacturers,” said Shetty.