Following the conclusion of the Reserve Bank of India's (RBI) latest monetary policy review, the central bank has decided to keep the repo rate unchanged at 6.5% for the 10th consecutive time. The decision reflects the RBI’s ongoing effort to balance inflation control with the need to support economic growth. While inflation numbers and geopolitical tensions were cited as significant risks, the central bank also took a cautious stance, acknowledging that the global economic environment remains uncertain.
One of the most notable changes in this policy review is the shift in RBI's stance from an "accommodative" to a "neutral" approach. This signals a readiness to take action in either direction—if inflation remains under control and economic growth shows stability, the RBI may consider reducing rates in the near future. On the other hand, if inflationary pressures rise, the bank may be forced to raise rates again. Currently, the central bank has opted for a wait-and-watch strategy to assess how domestic and international factors play out in the coming months.
" Based on how the situation unfolds in the near future, this signals that the central bank is ready to go either way - if inflation stays low, we may see rate cuts in the future. However, at present, it is a wait-and-watch situation," said BankBazaar CEO Adhil Shetty.
Deepak Shenoy, Founder & CEO, Capitalmind said, “RBI decided to keep the policy rate unchanged on the back of potentially higher inflation going forward due to a base effect from last year, higher food prices worldwide, and geopolitical conflicts. However they have changed their stance to "neutral" from the earlier one of withdrawal from accommodation, which bodes well for future rate cuts. While the 10 year bond has reacted by the yield falling by 7bps to 6.74%, the extent of the damage due to the base effect and near term food price rises will determine the future course of action. The actions in the middle east may also create imbalances that will drive rate changes by the RBI. However, growth projections remain strong at over 7% for FY 2025, and with surplus liquidity, there seems to be very few areas of stress. The policy has also improved RTGS/NEFT transfers by allowing banks to show the name of an account holder before a transfer is done, just like in UPI. This will reduce the stress in larger volume transfers.”
Pradeep Aggarwal, Founder & Chairman, Signature Global (India) said, "The RBI's decision to hold rates steady aligns with expectations, to keep inflation under check. While the recent rate cut by the US Federal Reserve has sparked similar hopes in India, the domestic situation remains distinct, with the central bank prioritizing inflation management within its target range. Yet policy stability bodes well in the ongoing festive season which promises to be a significant phase in terms of real estate demand as the industry is hopeful of the continued rise in residential sales. As and when a rate cut is anticipated soon, which, when implemented, will benefit both homebuyers and real estate developers to capitalize on the market and strengthen overall economic growth."
Impact on Home Loans
For homeowners and those paying EMIs (Equated Monthly Installments), the decision to keep the repo rate unchanged means that their loan interest rates will remain stable for now. While many had hoped for a rate cut that would reduce monthly loan payments, this seems unlikely to happen before December.
"Loan holders may need to wait longer for rate cuts, possibly until December. If inflation stays under control, a rate cut may be on the cards. Until then, EMIs will remain at current levels," said Shetty.
Impact on Fixed Deposits (FDs)
Fixed deposit holders should take advantage of the current high interest rates while they last. The unchanged repo rate means that FD rates offered by banks will also likely remain steady for the time being. However, with the possibility of future rate cuts, FD holders might want to lock in their deposits now to secure the best returns. If rates fall in the future, locking in now could ensure higher interest rates on savings, providing a more stable income stream.
Impact on Debt Mutual Funds
Debt mutual funds are likely to benefit from any potential drop in interest rates. As interest rates decrease, the value of bonds within these funds typically rises, offering better returns for investors. If the RBI opts to cut rates in the coming months, debt fund investors could see significant gains. Therefore, now may be a good time to consider adding or increasing allocations in debt mutual funds, especially for those looking for relatively low-risk investments with steady returns.
"Debt mutual funds should benefit from falling interest rates. As rates drop, the value of bonds in these funds rises, leading to better returns for investors and now would be a good time to consider them," said Shetty.
Impact on Equity Mutual Funds
Equity funds continue to be a strong choice for long-term investors, especially given the current economic outlook. While inflation appears to be under control, and the RBI is taking a cautious stance, the overall recovery of the economy bodes well for businesses. This should translate into solid long-term gains in the stock market. For those willing to ride out market volatility, equity mutual funds remain a good option for generating higher returns over time.
"Equities and stock markets have a positive long-term outlook. With inflation in check and the economy recovering, businesses should do well. Equity funds, therefore, remain a strong choice for long-term investors," said Shetty.
The RBI’s decision to maintain the repo rate at 6.5% , reflects the central bank’s focus on inflation control amid global uncertainties. While there are no immediate changes in interest rates, the shift to a neutral stance suggests that the RBI is ready to adapt to evolving economic conditions. For now, both borrowers and savers should prepare for the possibility of changes in the coming months, with home loan borrowers waiting for potential relief and fixed deposit holders locking in the current rates. Investors in debt and equity funds can also position themselves to take advantage of the market's future moves.