Home loan interest rates expected to come down

Bangalore

The inflation rate is under control and the given macroeconomic factors could lead to the RBI bringing down the key rates in its next monetary policy review later this month. The next Credit Policy review is due on September 29. As always, there are expectations of a reduction in the key interest rates. The expectations are strongly supported by the ground realities and requirements. Bankers expect the Reserve Bank of India (RBI) to cut the key rates later this month as the inflationary pressures seem under control.

The industry is already pushing strongly for a rate cut. The RBI has already made a 75 basis percentage points reduction this year in instalments. It is to be noted that although the inflationary pressures are still not completely under control, the government's food management and the minimal rise in support prices of farm products should help in keeping the inflation rate under control.

The RBI has observed that 'so far the inflation outcomes have closely tracked the projections'. A reduction in the key rates is also called for because of the stressed balance sheets of corporates and banks, low capacity utilisation, low oil prices and depreciating rupee.

Some macroeconomic factors will further help in the push for an interest rate reduction. The major supporting factor is the subdued inflation rate that has touched record lows, as well as the inflationary forces. It has been further supported by the falling crude oil prices.

Bankers expect the RBI to cut the policy repo rate from 7.25 percent at the next meeting. The consumer price data for July has shown the retail inflation rate at a record low of 3.78 percent, giving the RBI more room to ease the policy rates.

In order to inject more momentum in the economy and encourage investments, the government and corporates have requested the RBI to lower the interest rates. The Index of Industrial Production (IIP) data for the month of June came in at 3.80 percent as compared to the previous month's data of 2.70 percent, but we have to gear up much more in the manufacturing segment for higher growth.

An interest rate cut by the RBI is sure to boost investments. Further, it is apparent from the recent earnings of corporates that demand has not picked up in almost all the sectors. However, this earnings season was better than the March quarter. Though the corporate earnings' growth has been muted so far, it is expected that the markets will remain positive as the long-term growth story of the economy is intact. The GDP growth rate slipped to seven percent in the April-June quarter of 2015-16, from 7.50 percent in the preceding quarter.

Source - TOI Banglore