It’s status quo on interest rate

There may be no fresh reductions in home loan lending rates, at least not until the first quarter of the next calendar year.

The RBI maintained status quo on the interest rates, the rate at which it lends to the banks on short-term basis. After surprising everyone concerned with a 0.50% cut during its last monetary policy announcement, this time no further cuts were announced and it was on expected grounds.

Since January the rates have been cut by 125 basis points or 1.25%; the current repo rate is at 6.75%, unchanged from its earlier levels.

The Indian economy grew at a healthy rate of 7.4% during its first half-year (GDP growth) and the renowned international rating agency Moody’s reiterated that the country is on the recovery path. Inflation too is hovering in the sub-5% range.

Is India on the recovery path? Economic recovery is a work-in-progress for developing nations and no magic can be expected overnight. The results would take time notwithstanding the aberrations such as below normal monsoons, distribution challenges, and bureaucratic bottlenecks.

Accommodative

The RBI head indicated he would be accommodative and would consider cutting rates if warranted.

If indeed the inflation rate would be controlled under 5% over the next few months there would be room for another at least 0.25% rate cut. But the problem is whether banks and HFIs have transmitted the benefit to the end user.

Even after the rates were cut by 1.25% this calendar year only about 0.50% to 0.70% has been reduced that benefited the borrowers; the rest of the benefit is yet to be passed on. The RBI is seeking answers and also solutions to see how its largesse gets transmitted fully to the end borrowers.

The central bank is hopeful that the banks would be in a better position with their NPA problems over the next few quarters, by FY 2017 and then things would start falling in place.

There may be no fresh reductions in home loan lending rates, at least not until the first quarter of the next calendar year. But one can be hopeful that the rates would indeed come down sooner than later.

Opting for the floating rate would still continue to be the ideal choice.

Published - December 11, 2015 07:06 pm IST