1. A repo change starts a chain, not a switch

Suppose RBI changes the policy repo rate today. Your bank does not simply copy that number into every loan and deposit tomorrow.

The process is called monetary-policy transmission: a policy-rate change first affects short-term financial conditions and then travels through market rates, bank funding, deposit pricing, loan benchmarks and asset prices.

This can take time. Different products also react through different mechanisms, so your EMI, a new FD and an existing bond do not necessarily move together.

Think ripple, not switch: RBI starts the signal, but financial contracts and market conditions determine how the signal reaches you.

2. A floating-rate EMI responds through its benchmark and reset date

Many floating-rate retail bank loans are linked to an external benchmark, which may be the RBI policy repo rate or another permitted benchmark. The lender then adds the applicable spread under the loan contract.

If the benchmark changes, the loan rate changes when the contract reaches its applicable reset. Depending on the product and terms, a rate change can affect the EMI, the remaining tenure, or the repayment structure offered to the borrower.

A fixed-rate loan works differently. Its rate does not automatically change merely because RBI changed the repo rate.

Check your own loan agreement. Benchmark, spread, reset frequency and fixed-versus-floating structure determine how a policy-rate change reaches your loan.

3. FD rates change when banks change the price of new deposits

Banks use deposits as an important source of funding. When financial conditions change, banks may change the interest rates offered on new fixed deposits.

But a fixed-rate FD that you already booked generally continues at its contracted rate until maturity, subject to its terms. A later repo cut does not normally rewrite the rate on that existing deposit.

When the FD matures, renewing it means accepting whatever rate is applicable to the new deposit at that time. That is why today's FD rate and next year's renewal rate can be different.

Existing fixed-rate FD

Usually continues at the booked rate until maturity, subject to its terms.

New or renewed FD

Receives the bank's applicable rate when the new deposit is booked.

4. Existing bond prices can move when market yields change

Imagine you own a fixed-rate bond paying a particular coupon. If new market interest rates rise significantly, investors may demand a higher yield. Your older fixed coupon becomes less attractive unless the bond's market price falls enough to compensate.

That is why bond prices and market yields generally move in opposite directions for existing fixed-rate bonds. Falling yields can support prices; rising yields can push prices down.

The size of the move also depends on maturity, duration, credit risk, liquidity and market expectations. RBI policy is important, but it is not the only thing determining a bond's price.

Three different paths: Floating loans reprice through benchmarks, new FDs through bank deposit pricing, and traded bonds through market yields and prices.

5. Quick check

You booked a two-year fixed-rate FD six months ago. RBI cuts the repo rate today. What normally happens to your already-booked FD?

A. Its contracted rate automatically falls today

B. Its contracted rate generally continues until maturity, subject to the FD terms

C. The FD immediately becomes a floating-rate loan

D. RBI directly decides the maturity amount of your individual FD

Answer: B. policy changes can influence new deposit rates, while an existing fixed-rate FD generally retains its contracted rate until maturity.