Why interest rates on home, auto and personal loans are are not going down in a hurry?

Investment

oi-Sunil

By Sunil Fernandes

Published: Wednesday, August 6, 2014, 8:31 [IST]

Interest rates on loans including home loans, personal loans, gold loans, auto loans, education loans etc., are unlikely to go down in a hurry as the RBI on Tuesday sent strong signals, on why it is not comfortable cutting repo rates anytime soon.

Repo rates are rates at which the Reserve Bank of India (RBI) lends money to banks in India. When the RBI reduces the interest rate or repo rate to banks, it tends to bring down interest rates in the country, as banks tend to reduce interest rates, as their borrowing costs have reduced. Of course, it is not always that it happens. Banks examine their own asset liability mismatch before tinkering with interest rates. But broadly speaking, a cut in the repo rate tends to bring down interest rates in the country.

RBI provides enough hints that it would not cut repo rates soon

The RBI under Raghuram Rajan has on numerous occasions mentioned that inflation remains its biggest concern. No central bank in the world cuts interest rates when inflation is at elevated levels. The RBI has mentioned that inflation would remain at 8 per cent.

"However, with some continuing uncertainty about the path of the monsoon, it would be premature to conclude that future food inflation, and its spill-over to broader inflation, can be discounted." the RBI said in its Monetary Policy release.

The RBI governor himself has stated that retail inflation target of 6 per cent is out of reach, while 8 per cent is within reach. All this point to the fact that the RBI may not cut interest anytime soon, and one can perhaps look forward to a cut only towards the end of the year.

So, if you are looking to take loans like home loan, auto loan, gold loan, education loan etc., you would do well to wait till the end of the year, if you can, before taking a loan.

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