Home loan rates are safe for now

 The six-member Monetary Policy Committee (MPC), led by RBI Governor Shaktikanta Das, held interest rates constant, as predicted, and maintained the 'accommodative' stance. The repo rate would be kept at 4%. (repo rate is the rate at which RBI lends to banks on short-term basis which also is considered as the benchmark rate for deposit and lending across the financial markets).

Following the economic disruptions caused by COVID-19, the central bank's priority has been on economic growth and restoring GDP to pre-COVID-19 levels (Gross Domestic Product is the growth yardstick of an economy).

The MPC kept its GDP forecast for fiscal year 2021-22 at 9.50 percent, but reduced the inflation forecast from 5.70 percent to 5.30 percent. Despite the recent steep increase in gasoline and diesel prices, inflation has suddenly declined, which is good news.

The MPC believed that the economy was showing hopeful signs of recovery following the second COVID-19 wave, and that the removal of limitations combined with a more aggressive vaccination campaign bode well for the recovery process. The liquidity situation is favourable, and macroeconomic demand is increasing.

On the housing front, the current interest rate situation is positive; the current low home loan rates of 6.50 percent to 7.00 percent augur well and will help maintain demand for home purchases. In the real estate sector, there has been an aggressive launch of new projects and a rapid selling of completed houses/flats.

Banks and home finance institutions have also experienced an increase in loan disbursements.

The question of whether interest rates will be cut in the coming months appears to have a simple answer: unless there are any geopolitical shocks or a sharp increase in crude oil prices that push inflation above RBI's comfort levels, interest rates will remain unchanged for at least the next two quarters.

Since the position of economic development, liquidity, and demand remains favourable, there could be no fall or increase in interest rates. When there isn't a problem, why tinker? These are the variables that have led the MPC to adopt a 'accommodative' posture in its interest rate decisions in the future.

It is believed that once the economic engine has gained traction, it would run at full throttle. The RBI and MPC might have a field day controlling inflation because a rapidly developing economy comes with its own set of issues, one of which is high inflationary headwinds. It would be an awful assignment if the MPC's think-tank was compelled to raise interest rates in such a scenario, which would be harmful to the real estate sector and the economy as a whole.

Conclusion

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