Significant Drop in Home Loan Rates

December 03, 2009: Home loan interest rates have come down quite significantly over the last one year as the Reserve Bank of India (RBI) cut the key policy rates (repo and reverse repo rates) and the cash reserve ratio (CRR). The RBI adopted a soft monetary policy by reducing its policy interest rates. The RBI adopted the soft interest rate regime to promote spending and stimulate economic activities, and prevent the economy from getting into a recession in line with the global economic conditions.

In general, the economic conditions have improved significantly over the last few quarters and the liquidity situation is good in the system. The RBI has to balance the risks associated with inflation, fiscal consolidation and capital inflows. Its decision to continue or exit from the low interest rate regime depends on several factors associated with these risks.

Analysts believe the RBI’s policy largely depends on macroeconomic and financial market conditions . Factors like strong aggregate demand conditions and a well-functioning domestic banking system will pave the way for a gradual exit from the soft monetary policy. Analysts believe the rates will remain stable for some more time. This policy will be in place till the various parameters give strong indications that a tightening will not hamper the economic recovery process and inflation will stay in control.