Will Home Loan rates come down ?

With the inflation coming down and the US fed reserve cutting the rates effectively for the banks in the US, there is a growing feeling that the RBI will also reduce the CRR or reduce the benchmark rates thereby paving the way for the bank to reduce the rates for the customers across various assets especially the home segment.

Some banks like HDFC, Canara bank have already cutting the borrowing rates by about 0.5 % pa. for the new loans and have mentined that they will decide about the existing customers after the credit policy.

However, the situation in India is slightly different now. Even though the inflation is low, there is a serious infusion of Foreign money into the Indian stock markets with frsh money pouring in every day. This has caused a huge demand for the Rupee and the ruppee is appreciating and has breached the Rs 40 mark to the US dollar. The RBI and the government have also said that the pace of appreciation is too fast for comfort and they know that exporters will get hit if the Ruppee continues to appreciate.

Thus while on one hand, we have a stable inflation and reducton in interest rates across the world led by the recent cut in the US, we have an appreciating Ruppee and a huge liquidity position with us. With a huge amount of liquidity in the markets, there seems to be a possibility of a CRR hike. This means that the home loan rates might actually increase or remain stable as a result of this. The cost of funds for the banks will go up, if there is a CRR hike.

Assuming a 50 bps CRR hike, the net outgo of banks, which they would have lent out, at around Rs 13,889 crore, would be now kept with the RBI.