New Delhi: Recently, the Federal Reserve in the US has announced a cut of 50 basis points (0.50%) in the policy rate. This step has been taken to control inflation. But the question is how will this cut affect the pocket of the common man? Let's understand.

America's decision and pressure on India

This decision of America can increase the pressure to reduce interest rates in India as well. Currently, the repo rate in India is stable at 6.5%. The next meeting of the Reserve Bank of India (RBI) will be held in October, when a decision can be taken on this. If rates are reduced in America, then India will also feel its impact.

The relationship between inflation and interest rates

To control inflation, central banks increase interest rates. When inflation rises, banks also increase the interest rates on loans, which reduces people's purchases and controls inflation. When inflation is low, interest rates are reduced, which makes loans cheaper.

The effect of interest rates on loans

When the repo rate decreases, loans also become cheaper for banks. This directly affects the EMI of your loan. The interest rates of home loans, personal loans, and auto loans are linked to the repo rate. When the repo rate decreases, banks also reduce their interest rates, which can reduce your EMI.

Understand with Example

Suppose you took a home loan of Rs 30 lakh at an interest rate of 6.7% for 20 years. If the repo rate at that time was 4%, then your EMI would be Rs 22,722. But if the interest rate increases to 9.2%, then your EMI will increase to Rs 27,379. This means that the burden on your pocket will increase by Rs 4,657 per month.

Impact on Fixed Deposits

Changes in the repo rate affect not only loans but also the interest rates of fixed deposits (FDs). When banks make loans expensive, they increase interest rates on FDs to attract customers. Currently, many government banks are offering 7-8% interest and some small finance banks are offering up to 9% interest.

A reduction in interest rates has a direct impact on the pocket of the common man. A lower loan EMI can reduce your monthly expenses, while a higher interest rate on fixed deposits can increase your savings. Therefore, such economic decisions have a significant impact on your financial future.