Homes and gardens

Right time to buy a house?

RBI decision to lower repo rates may lead to cheaper home loans. By Balaji Rao

It has been almost nine months since the last cut in the rates and this week, as a result of falling inflation, the Reserve Bank cut the rates by 25 basis points, taking the key policy rates to 6% from 6.25%. Key Policy Rate is the rate at which banks borrow from the RBI to meet short-term fund mismatches, also termed as Repo Rate.

Low repo rates make the borrowing cheaper for banks that may further lead to reduced lending rates for borrowers of various loans including home loans.

Whether the banks will pass on the benefit to the borrowers will have to be seen considering various challenges bothering them such as high liquidity and unresolved NPAs that have made banks to be extra cautious on lending freely.

There could be good news for existing home loan borrowers because the central bank has prompted banks to reduce the rates not only for new borrowers but also for old ones. Since most of the benefits of rate cuts have not been passed on to these set of borrowers over the last few quarters, this move may prove beneficial.

The stance of the Monetary Policy Committee continued to be “neutral”, a change from being “accommodative”, due to the after-effects of GST that may stoke inflation in the coming months and also subdued credit growth across industries.

Apart from GST, other concerns such as farm loan waiver in key States, increase in HRA for government staff and uneven monsoon across the country also weighed in on the panel’s decision to stay put with the “neutral” stance. The RBI seems to be almost sure of inflation rising in the coming months and has pegged the same to be in the range of 4%, more than double from what it was reported during July 2017.

In the recent past most banks have reduced home loan rates largely due to higher liquidity post-demonetisation and the rates may go down further. Since the last two years housing loan rates have reduced drastically from plus 10% to sub 8.50% which may come down by another 0.25% in the near future.

The rates may remain at the current levels for a while unless RBI sees it can shift its stance to being “accommodative” which depends of how the economy will perform with the given challenges. With the long term in view, floating rates still remain to be the choice while seeking home loans since as an economy we are still in the stage of accommodating lower interest rates.

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Printable version | Feb 19, 2020 5:58:36 AM |

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