Home loan rates are safe for now

Key interest rates remain unchanged; banks, housing finance institutions see uptick in loan disbursals. By Balaji Rao

The six-member Monetary Policy Committee (MPC) headed by the RBI Governor, Shaktikanta Das, as expected, kept the interest rates unchanged and the stance continues to be ‘accommodative.’ The repo rate would remain at 4% (repo rate is the rate at which RBI lends to banks on short-term basis which also is considered as the benchmark rate for deposit and lending across the financial markets).

In the wake of COVID-19-based economic disruptions the focus of the central bank continues to be economic growth and bringing back GDP on track (Gross Domestic Product is the growth yardstick of an economy).

The MPC retained its GDP forecast for the financial year 2021-22 at 9.50% and also lowered the inflation projection from 5.70% to 5.30%. Despite the sharp spike in petrol and diesel prices in the last few months, inflation surprisingly has receded, which is good news.

The MPC was of the opinion that the economy was showing encouraging signs of recovery post the second COVID-19 wave and the relaxation of restrictions coupled with intensified vaccination drive have augured well for the economic recovery process. The liquidity situation is quite good and demand is picking up at the macro level.

On the housing sector front, the status quo on interest rates can be seen as good news; the prevailing low home loan rates of 6.50% to 7.00% augur well and would help maintain the demand for buying houses. Aggressive launch of new projects and brisk sale of finished houses/flats has been witnessed in the real estate segment.

Banks and housing finance institutions too have seen a healthy uptick in their loan disbursals.

The question whether the interest rates would be reduced in the coming months seems to have an easy answer: unless there are any geopolitical shocks and/or sharp increase in the crude oil prices pushing the inflation above RBI’s comfort levels, the interest rates would remain unchanged at least for the next two quarters.

There could neither be any decrease or increase in the interest rates since the situation of economic growth, liquidity and demand continues to be favourable. Why tinker when there is no problem? These are the factors that has influenced the MPC to have taken the ‘accommodative’ stance on its future decision on interest rates.

With the economic engine gaining its momentum, it is expected to run at full throttle. RBI and MPC could have a field day in controlling inflation since a rapidly growing economy would bring its share of problems, and high inflationary headwinds is one among them. It would be an unenviable task if in such a scenario the think-tank of the MPC is forced to increase the interest rates which could be detrimental for the real estate segment and for the economy as well.

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