there will no immediate impact on the monthly payments on home loans, personal loans and vehicle loans. This is owing to the fact that lenders are expected to take some time to decide on any potential rate changes in the future based on their own financial position and expectations of rate hikes by policy makers.
Amid the economic downturn brought about by the pandemic, the RBI’s focus has so far been on reviving the growth. However, going forward, things could change as many indicators suggest the inflation may become a concern soon, triggering a policy shift by the central bank. In the United States, retail inflation reached a record high of 7 per cent in December last year, and in late-January the US Federal Reserve signalled plans to hike rates in March to keep future inflation under control.
In December 2021, the retail inflation in India, measured by consumer price index (CPI) rose to 5.59 per cent. Therefore, economists are of the view that the Reserve Bank’s primary focus will be to shift to its core mandate, which is to ensure inflation remains within the range of 2 to 6 per cent. This could force the apex bank to increase the policy rates going forward.
Considering what it would mean for depositors, experts project increases in short term deposits first. This is owing to the fact that whenever the interest rate cycle makes a U-turn from the bottom, it is the interest rates of short to medium term deposits that are likely to rise first. Depositors are also advised not to lock their funds for a longer term at a lower rate. It is better to go for a term of one year or less so that once the short to mid-term rates rise, you can start increasing the tenure of your deposits accordingly.
