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Mid Term Drop in Home Loan Rates
After the high interest rate scenario over the last couple of years, the first signs of interest rate softening were seen in October when the Reserve Bank of India (RBI) announced sharp cuts in the repo rate and cash reserve ratio (CRR). Some rate cuts by almost every bank in all consumer loan segments have already happened. Now, there is a buzz in the market that more interest rate cut announcements are expected in the near term. Considering the market conditions, some rate cuts seem imminent in the near future. However, the government and RBI are playing safe. They are analysing the situation carefully rather than acting in a hurry.
Some factors influence the RBI’s decision on monetary policy. An analysis of these factors indicates borrowers can expect some softening in interest rates in the medium term. The global economy is going through a recession phase. There is a softening of prices in the global commodities market. Prices of all major commodities have come down significantly. Crude oil prices have come down to one-third of their peak prices quoted in March this year. Due to the global recession , foreign funds are withdrawing their investments from domestic markets to shore up resources to beat the global liquidity crunch.
Foreign institutional investors (FIIs) have remained net sellers in the domestic stock markets this year and have sold stocks worth more than USD 12 billion so far. The effects of global slowdown have started showing up in the domestic economy as well. The RBI has already announced one round of sharp cuts in key policy parameters in October this year. Analysts believe the RBI will announce more rate cuts shortly to shield the domestic economy from the global economic slowdown .
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