The expectations were very high after the new government took over the reins at the Centre about two months ago. But no magic can be done in a short span of time to turnaround the economy. The effects of efficient policies and resolutions would take considerable time to yield positive results.
While the RBI was expected to cut the key rates at least by 50 basis points (or 0.50%) in its bimonthly policy that was announced earlier this week, no such sops were doled out. The Governor’s steely resolve to address inflation at the cost of growth continues by maintaining status quo on the rates. The repo rate remains at 8%, the rate at which banks borrow from the RBI to meet their short-term fund requirements.
The wait for further rate cuts would be longer than expected since the undertone of inflation remains uncomfortable. The rates have been held at 8% over the last three policy announcements that mirror the situation. With monsoon playing truant this year and other global uncertainties complementing the problem, the RBI has again shown its hawkish side, which is quite understandable.
Banks are expected to hold the lending rates at the prevailing levels in line with the announcement. However, the liquidity situation is likely to ease with RBI reducing the SLR by 50 basis points (the portion of mandatory approved securities that banks would have to purchase as part of the prudential norms). Banks will be able to access huge funds with this easing of SLR. The higher availability of funds is expected to increase lending activity and the biggest beneficiary could be the home loan sector which has a good traction, thanks to the budgetary announcements that has increased the tax saving capacity of home loan borrowers, motivating them to invest in real estate.
Borrowers can shop around for the best deals on interest rates and invest in houses which could help them in creating a valuable asset as well as lower the tax outgo. Opting for floating rate is highly recommended. Fixed rate loans should be avoided keeping in mind the future easing of rates.
