Cut on Interest Rates Put on Hold by RBI
May 17, 2017 Home Loan
During the fifth bi-monthly policy of the year, RBI recently put on hold the slash in interest rates. It seems like that the decision might have been influenced by the demonetization move of the government. Despite the hold on the cut on interest rate, home loan buyers may see a lower monthly EMI. Though, not all the home loan lenders are expected to go ahead with it.
For the loans taken before 1st April 2016, if the banks reduce the base rates for home loan EMI, then the monthly EMI will reduce.
Reasons why RBI has kept the rates unchanged at 6.35 percent
1.RBI has taken all the liquidity into its reserves:
Demonetization has led to the accumulation of all the liquid money. Around Rs 5.12 lakh crore has been deposited in banks post demonetization with the withdrawal of only about Rs 1 lakh crore. RBI has asked the banks to put the demonetized money in the reverse repo facility as a temporary measure. The return on saving accounts will remain an outflow for banks, thus affecting their cost of funds.
2.Fed hike rate:
The rupee is expected to go weaker with the hike in dollar. This may have been one of the reasons leading RBI to hold the interest rates as cutting the rates now and later increasing them in future might have left a bad taste in buyer’s mouth.
3.Impact on MCLR:
Since demonetization, the interest rates of banks are supposed to go down further. The huge inflow of cash from demonetization can reduce MCLR rates further.
4.Impact on home loans:
All the loans taken after 1st April 2016 are linked to MCLR of respective banks. As there are no reductions in bank rates now, the home loan buyers should not expect any reduction now. They can look forward to converting their loan account to MCLR account.
The country’s economy has expanded from 7.3 percent to 7.6 percent recently. Therefore, it is expected that the banks will cut the interest rates by almost 25 basis points.
RBI is aware of the current state of the economy. In the next bi-monthly meeting, the state of the country’s economy will be clearer. Steps for the reduction in the interest rates further will be taken into consideration. For the new home loan borrowers, they can wait till February for the dust to settle and the final decision about the home loan interest is made unless the property they are looking for buying is within their budget.
For the loans taken before 1st April 2016, if the banks reduce the base rates for home loan EMI, then the monthly EMI will reduce.
Reasons why RBI has kept the rates unchanged at 6.35 percent
1.RBI has taken all the liquidity into its reserves:
Demonetization has led to the accumulation of all the liquid money. Around Rs 5.12 lakh crore has been deposited in banks post demonetization with the withdrawal of only about Rs 1 lakh crore. RBI has asked the banks to put the demonetized money in the reverse repo facility as a temporary measure. The return on saving accounts will remain an outflow for banks, thus affecting their cost of funds.
2.Fed hike rate:
The rupee is expected to go weaker with the hike in dollar. This may have been one of the reasons leading RBI to hold the interest rates as cutting the rates now and later increasing them in future might have left a bad taste in buyer’s mouth.
3.Impact on MCLR:
Since demonetization, the interest rates of banks are supposed to go down further. The huge inflow of cash from demonetization can reduce MCLR rates further.
4.Impact on home loans:
All the loans taken after 1st April 2016 are linked to MCLR of respective banks. As there are no reductions in bank rates now, the home loan buyers should not expect any reduction now. They can look forward to converting their loan account to MCLR account.
The country’s economy has expanded from 7.3 percent to 7.6 percent recently. Therefore, it is expected that the banks will cut the interest rates by almost 25 basis points.
RBI is aware of the current state of the economy. In the next bi-monthly meeting, the state of the country’s economy will be clearer. Steps for the reduction in the interest rates further will be taken into consideration. For the new home loan borrowers, they can wait till February for the dust to settle and the final decision about the home loan interest is made unless the property they are looking for buying is within their budget.
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