Interest rate cut on the cards
Mar 29, 2014
Source : The Times of India


BANGALORE: The Reserve Bank of India (RBI) is scheduled to announce the annual monetary policy for 2014-15 on April 1. Going by the present macro and microeconomic factors, the RBI is likely to cut the key interest rates marginally.

The high inflation rate, which was a major concern for the RBI, is showing signs of moderation. Although the inflation rate has eased both in the Consumer Price Index (CPI) and in food prices, the RBI is expected to be a bit cautious while going in for key rate cuts. The RBI has to consider a host of factors – primary being the inflation rate. It also needs to consider the growth rate, stronger rupee, and its impact on exports.

In its third quarter review of the monetary policy in January this year, the RBI raised the repo rate by 0.25 percent to eight percent in a bid to bring down the inflation rate. According to estimates, the economy will expand 4.90 percent in the current fiscal ending March 2014, up from 4.50 percent recorded in the 2012-13 fiscal. Growth in the first nine months (April-December 2013) was 4.60 percent. The economy must expand by 5.70 percent in the January-March 2014 quarter to achieve the estimated GDP expansion of 4.90 percent in 2013-14.

The Wholesale Price Index (WPI) based inflation rate dropped to a nine-month low of 4.68 percent, while the retail inflation rate slowed to a 25-month low of 8.10 percent in February 2014. On the back of strong foreign investor inflows, recently the stock market barometer BSE Sensex jumped by more than one percent to log a new all-time high, while the rupee appreciated 24 paise to trade at Rs 60.65 against the US dollar.

Home loan rate outlook

The outlook for home loan interest rates depends on the market interest rates. Over the last few years, with the high inflation rates and the tough stand taken by the RBI in its credit policies, there was no relief for home loan borrowers.

Considering the current economic factors, prospective borrowers can expect the interest rates to come down marginally in the short term. In order to push growth in the GDP, the RBI may cut the key interest rates for the time being. In future, depending on the inflationary pressures, the RBI will go in for a gradual reduction in the interest rates over the coming quarters. This way, it will be able to monitor the impact of the interest rate cuts as well.

Accordingly, the interest rates on home loans will come down in the near future. Borrowers going in for a floating rate will benefit from the expected rate cuts in future.

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