Advantages and Disadvantages of Low Interest Rates in India

Posted On: 29-May-2021


In the latest monetary policy, the Reserve Bank of India Made its decision on Key Interest Rates as Unchanged. The prevailing interest rates are the lowest interest in the last two decades, let's discuss how it affects us.

In April first week Reserve Bank of India has made its decisions on Key interest rates that will be unchanged in its monthly policy review. It is the 6th time RBI monetary policy commuter has decided to make interest rates as same as before

The RBI's Repo and Reverse repo rates are 4% and 3.35% respectively. It is expected to be unchanged by Economists as same.

As per economist opinion, Low-Interest rate will be good for recovering economy, it will direct towards higher spending, consumption & growth.

Many people will be encouraged when there are low-interest rates to borrow more and spend more. However, there are many drawbacks associated with lower interest rates.

Advantages of  Lower Interest Rates:

The lowest repo rate is advantageous for those individuals who want to borrow from banks. It is because the interest rate is less because of RBI monetary policy.

EMI (Equated Monthly Instalments) on loans will be less as per the Marginal cost of funds based on lending rate. At this time when covid-19 is making many households paying their home loans, because of RBI monetary policy, they need to suffer more.

The Real Estate Sector can be in an advantageous position because of the Lower level of interest rate. As far as we knew when there is low-interest rate on home loans, people try to acquire homes by taking home loans.

As per experts opinion in the real estate sector (Sales & Marketing) the last two decades lowest interest rates on Home Loans made many households own their dream for home, it is diverted towards all segments to lower to mid-range segments. The apex bank of India RBI has made its decision on the lowest interest rate and the demand for home loans has drastically increased.

Disadvantages of Low Interest Rates:

As you have seen the above advantages now let's read the contradicting disadvantages associated with the Lower interest Rates. The consumption level has been increased due to low-interest rates but it will seriously affect the Savings of the Households

Low-interest rates are bad for those who maintain savings or fixed deposit bank accounts, where they will get lower interest earnings to save money.

If the interest rates are low, then it will not encourage people to earn on these savings schemes, higher interest rates will always encourage people to invest in banks to earn risk-free money.

The Lowest Interest Rates will make the banking business go down because there is no scope for higher revenue generation that is why it will affect the banking business drastically. Many people don't likely to deposit in the bank instead they will go for other options.


The above article might have made you understand the importance of interest rates which will define the whole economy purchasing power as well as savings mentality of individuals. So let's check out every year for more information on RBI monetary policy to get more idea about the repo and reverse repo rate to understand the implications of the Indian market.