Home Loan EMIs Unlikely to Fall in 2014: Analysts

The Reserve Bank held repo rate at 8 per cent on Tuesday, dashing hopes of a reduction in EMIs on home and auto loans. More importantly, the RBI seems to have set its eyes on the long-term inflation target of 6 per cent by January 2016, which means interest rates are unlikely to come down over the next 12-18 months, analysts say.

Growing concerns that disappointing monsoon rains will lead to a surge in food prices led to a status quo in monetary policy. Although both wholesale price inflation (WPI) and consumer price inflation (CPI) eased in June, below-average rainfall remains the biggest concern. (Read the full story here)

"With some continuing uncertainty about the path of the monsoon, it would be premature to conclude that future food inflation, and its spill-over to broader inflation, can be discounted," the RBI said in a statement.

Sajjid Chinoy, India economist at JPMorgan, told NDTV that very few countries in the world can live with 8 per cent inflation, so the central bank must focus on controlling prices.

"It's unlikely that over the next 18 months, the central bank will go for a big rate easing cycle," he added.

Rupa Rege Nitsure, chief economist at Bank of Baroda says Governor Raghuram Rajan is giving a clear signal that one should not expect any monetary policy easing in a fairly long period of time because while RBI is confident that it will attain inflation target of at 8 per cent by January 2015, it is not so confident to attain the 6 per cent by 2016.

The central bank cut the statutory liquidity ratio (SLR) by 50 basis points to 22 per cent effective from August 9 in a bid to free up more money for lending. The RBI also cut the ceiling on debt that must be held-to-maturity by 50 basis points to 24 per cent. (Read)

However, Dr Rajan clarified that the SLR cut was not meant to make loans cheaper. The decision will provide more flexibility to banks when credit growth picks up, he said. Cutting HTM will improve liquidity in the markets, he added.

Last month, the RBI had done away with mandatory reserve requirements for bonds raised for infrastructure and affordable housing lending. The move was supposed to bring down interest rates for home loans as well. (Read the full story)

However, former SBI Chairman Pratip Chaudhuri today said that no bank has taken any plausible step in this direction.

Dr Rajan today said he will not hold interest rates high any longer than is necessary, but for consumers struggling under the spell of high EMIs, there seems to be little respite on the anvil.

(With inputs from Reuters)