BANK ONE
16, Sir William Newton Street
Port Louis, Mauritius
News
The impact of the adjustment of the Key Repo Rate on rates.
October 4, 2022
What are the current savings and fixed deposit rates from commercial banks? With the Key Repo Rate increase, how will be the rates be affected?
Indeed, following the change in Key Repo Rate, commercial banks have to adjust their base savings rate as well as their Prime Lending Rate (PLR, which is a reference rate, to which all loan interest rates are indexed). To give you an idea, savings rates currently vary between 0.50% and 0.65%. With the change in Key Repo Rate, new savings rates are expected to vary between 1.20% and 1.40%.
What about personal loans with different maturities (5 years, 10 years, 15 years, 20 years)?
New rates for personal loans are expected to vary between 8% and 12%.
What about home loans?
New rates for home loans will fluctuate between 4% and 5%.
What about corporate rates with different maturities (5 years, 10 years, 15 years, 20 years)?
New interest rates applicable on business loans are expected to vary between 6% and 8%.
Let us take the example of a home loan. If an individual has taken a home loan of Rs 2 million with a reimbursement period of 10 years, what will be the difference between the amount he is paying back currently and how much more he will have to pay after the 0.75% increase?
A customer having a home loan of Rs 2 million over 10 years will have to pay a total of Rs 85,000 in added interest over a period of 10 years.
What about the impact for someone having a savings account?
On the other hand, a customer with Rs 1 million in a savings account will now earn interest amounting to Rs 12,560 over one year as compared to Rs 3,003 on previous rates.
What will be the net effect of this rate hike on (1) savers and (2) borrowers? Will this decision encourage more saving and discourage borrowing?
The central bank’s main objective in raising the Key Repo Rate is to slow the pace of expansion of economic activity to better control inflation while encouraging savings instead of consumption.