Mortgage rates are secure for now

The key rates remain unchanged; banks, housing finance institutions see an increase in loan disbursements. By Balaji Rao

TThe six-member Monetary Policy Committee (MPC) chaired by RBI Governor Shaktikanta Das has, as expected, kept interest rates unchanged and the position continues to be “accommodating.” The reverse repo rate would remain at 4% (the reverse repo rate is the rate at which the RBI lends to banks in the short term, which is also considered the benchmark rate for deposits and lending in financial markets) .

Following the economic disruption due to COVID-19, the central bank continues to focus on economic growth and getting GDP back on track (gross domestic product is the indicator of an economy’s growth).

The MPC kept its GDP forecast for fiscal year 2021-22 at 9.50% and also lowered the inflation projection from 5.70% to 5.30%. Despite the sharp rise in gasoline and diesel prices in recent months, inflation has declined surprisingly, which is good news.

The MPC was of the opinion that the economy was showing encouraging signs of recovery after the second wave of COVID-19 and that the easing of restrictions coupled with the intensification of the vaccination campaign bode well for the recovery process. economic. The liquidity situation is quite good and demand is picking up at the macro level.

On the housing front, the status quo on interest rates can be seen as good news; the low prevailing mortgage rates of 6.50% to 7.00% bode well and would help maintain demand for home purchases. The aggressive launch of new projects and the rapid sale of finished houses / apartments have been observed in the real estate segment.

Banks and housing finance institutions also saw a sharp increase in their loan disbursements.

The question of whether interest rates would be cut in the coming months seems to have an easy answer: unless there are geopolitical shocks and / or a sharp rise in crude oil prices pushing inflation to the next level. Above RBI comfort levels, interest rates would remain unchanged. at least for the next two quarters.

There could be no fall or rise in interest rates since the situation of economic growth, liquidity and demand remains favorable. Why tinker with when there is no problem? These are the factors that prompted the MPC to take an “accommodating” stance on its future interest rate decision.

With the economic engine gaining momentum, it is expected to be running at full speed. RBI and MPC might have a field day to control inflation, as a rapidly growing economy would bring its fair share of problems, and high inflationary headwinds are one of them. It would be an unenviable task if, in such a scenario, the MPC’s think tank were forced to raise interest rates, which could be detrimental to the real estate segment and the economy.