Why interest rates on loans will not go down in a hurry?

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 Why interest rates on loans will not go down in a hurry?
Earlier this week, the Reserve Bank of India (RBI) held repo rates steady and did not cut them. Repo rates are rates at which the RBI lends money to banks. When repo rates are cut, banks start dropping the interest rates on loans, which they charge individuals.

Now, Monday's decision not to cut rates means that auto loans, home loans, personal loans and other forms of loans are unlikely to fall anytime soon.

Those who are planning to take the more expensive home loans and are waiting for interest rates to fall, the wait might be longer then envisaged.

The question is: will interest rates fall in the next 6 months to enable people to postpone their decision to take a loan? The answer is not very simple. The RBI has said that it would reduce interest rates, only when there is a sustained dip in inflation. Now, with the consumer price inflation hovering near double digits and with imported inflation likely to rise, because of costlier fuel imports due to a falling rupee, the RBI may not cut rates aggressively in the future. The country's central bank has made its position clear, that inflation is more important for it, then growth in the economy.

There could be a 0.50 per cent cut in interest rates in the next few months, but, to expect more then that would be foolhardy.

Hence, those who are planning to take loans hoping that interest rates would fall aggressively, maybe a little disappointed.


Read more about: rbi, interest rates, repo rates
Story first published: Wednesday, June 19, 2013, 8:32 [IST]
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