The rate cut chant gathers momentum as the headline inflation falls further, raising hopes of an economic revival. With the central bank furious over banks and housing financial institutions not passing on the rate cut benefit to its customers by reducing interest rates, there had been pressure on the lenders to start cutting the rates.
Over the last one week, majority of the banks and HFIs reduced the interest rates by about 0.25% bringing the lending rates to sub 10%, which would be music to the ears of the home loan borrowers – both new and existing. The country’s largest lenders, SBI, ICICI Bank and HDFC Ltd., set their home loan lending rates at 9.90% for all floating rate loans which is expected to have a positive effect on the rest of the lenders who too are expected to follow suit.
Initially being sceptical of passing on the rate cut benefits to the borrowers, after the RBI Governor vocally expressed his dissent, all the major banks and NBFCs were seem to be in a hurry announcing new rates and in almost five years the lending rates on home loans came down to single digit.
The new rates would offer a lot of comfort to borrowers who have been reeling under the double blow from high inflation and higher outflow of EMIs which had crippled their saving and spending abilities. When the lending rates were at 12% the EMI outflow on Rs.20 lakh loan for a tenure of 15 years was Rs.24,003 and at the present rate of 9.90% the outflow would reduce to Rs.21,370, which would put an additional amount of Rs.2,633 into the pockets of the borrower and its multiplier effect on annual savings would be quite handsome.
The growth of an economy is dependent on higher purchasing power through lower inflation levels and lower interest rates leading to higher consumption capabilities. If the government is able to manage both these deftly then the country would be a force to reckon with. It is easier said than done, but sincere efforts are required to implement policies and vest powers to execute them.
Apart from the home loan borrowers, another beneficiary of the rate cut would be the real estate sector who could also access funds at lower rates which would spruce up their activities. The government’s dream of offering “affordable homes” would get the right fillip if the rates continue to be affordable for all the stakeholders of this segment.
This is the right opportunity for new home buyers to shop around and seek good rate deals and not to forget to opt for a floating rate option which could be beneficial given the fact that the rates may have started to head south.
