Home loan rates likely to remain stable

RBI switched to a softer monetary policy by reducing its policy interest rates to boost economic activities and prevent the country from going into recession as few other western economies.

However, economic conditions have improved significantly over last few quarters and the capital flow in the system is good.

With the improvement in economic condition, many felt that RBI would exit its soft monetary policy and this would lead to increase in home loan rates. However, analysts are of the opinion that RBI would consider various factors before exiting its accommodative monetary policy since a premature withdrawal of the existing monetary policy might slowdown the pace of economic growth. However, a late exit might shoot up the inflation.

Some of the factors that may lead to a change in monetary policy in near to medium terms:

Macroeconomic and financial parameters

Since RBI has to manage the risks associated with inflation, fiscal consolidation and capital inflows, its decision to continue or exit the accommodative monetary policy depends on various factors associated with the risks.

Analysts feel that RBI’s stance would primarily depend on macroeconomic and financial market conditions. Factors like strong aggregate demand and a well functioning domestic banking system will lead to gradual exit from low interest rate regime.

Analysts believe that the present rates would continue for some time and the central bank would not tamper with the rates until it is sure that tightening would not hinder economic growth and inflation would remain within control.

Source

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