RBI credit policy: Will home loan rates go down?
As the Pranab Mukherjee presents his Union Budget 2012, Industry experts give their reaction.
Interest rates on home loans are unlikely to go down as the Reserve Bank of India (RBI) is likely to hold rates steady in its mid-quarter review of monetary policy today. The central bank has not cut rates for nearly three years. In this period, the repo rate, which is the rate at which banks borrow money from RBI, has gone up by 3.5 per cent to 8.5%.
Only 27 per cent respondents in a poll of bankers' conducted by NDTV Profit said the RBI will cut the repo rate by 0.25 per cent today. 94% respondents said the central bank will start cutting rates in April 2012.
But Governor D Subbarao may just surprise the Street as he did last week when he cut the cash reserve ratio, the amount of funds that the banks have to keep with RBI, by 0.75% to 4.75 per cent- more than what most analysts expected.
Why the central bank may cut rates:
1) The headline inflation picked up for the first time in five months in February but the rise came on higher food costs, something that the central bank is not too bothered about. The non-food manufactured inflation, which the central bank uses to gauge demand-driven price pressures, slowed to a 14-month low of 5.8 percent from 6.7 percent in January.
2) Weak economic momentum: India's economic growth faltered to a three-year low of 6.1 percent in the December-quarter. The pace of economic expansion this fiscal year is forecast to dip below 7 percent for the first time in three years.
3) Lower rates are needed to revive sentiment and spur investment.
What may prompt the RBI to hold on to rates:
1) India's factory output grew its fastest in seven months in January, powered by a surge in manufacturing including consumer non-durables.
2) A recent rally in global oil prices that threatens to derail India's slowing inflation is also expected to prompt the central bank to leave interest rates on hold for another month at least.
3) The need for clarity on the government's fiscal roadmap would prevent the RBI from cutting rates before the April-June quarter. The government is poised to miss this fiscal year's deficit target of 4.6 per cent of GDP by a wide margin.
(With inputs from Reuters)