The first bi-monthly monetary policy of RBI for 2014-15, as expected, had no surprises. The CRR and the Repo Rates were untouched at four and eight per cent respectively. CRR is the portion of deposits that banks have to mandatorily maintain with RBI and repo rate is the rate at which banks borrow funds from RBI on overnight basis to meets short-term fund shortages.
Though the headline inflation has tapered down, the RBI is in no mood to reduce the key rates at this juncture since the central bank too is keen on the election results and the formation of a government before any changes are effected.
While a favourable election result could lead to euphoria, an unfavourable result could lead to a confused situation which the central bank is wary of. People’s reaction could affect the debt, equity and currency market, leading to various adjustments. Hence, it was a prudent decision by RBI to maintain status quo on the rates.
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The banks too are expected to keep the lending rates unchanged. At 10.15 to 10.50 per cent, the home loan rates currently offered across banks and HFIs are attractive and now is the right time to utilise the opportunity. With a hope of economy’s revival and inflation easing, the rates are expected to be sub-10 per cent in 2014-15. It would be ideal to choose floating rate which would surely benefit the borrowers with reduced EMI outflow in the coming months.
Since this is the first month of a new financial year it would be a good idea to start planning the finances. Systematic investments in tax saving mutual funds, buying health insurances, buying term assurance plans, investing in post office savings can all be planned well in advance rather than getting into a cash crunch towards the end of the year.
Regular saving and investing habit with an asset allocation-based approach augers well for a good financial health.
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The author is a financial adviser and can be contacted at balajiraodg@gmail.com.