New Delhi: Home and car loans may get cheaper as the Reserve Bank of India (RBI) signalled a possible interest rate cut to boost economy at its annual credit policy on Tuesday. The government said on Monday that inflation had slightly eased in March, a day before what is forecast to be the first interest rate cut in three years, but a cautious tone from the Reserve Bank of India (RBI) added to expectations that monetary policy change will be gradual.
The RBI is widely expected to cut its main lending rate, the repo rate, by 25 basis points to 8.25 per cent on Tuesday, though economists have been paring back their rate cut forecasts for the year amid worries about high commodity prices and a heavy fiscal deficit. The Central Bank hiked interest rates 13 times between March 2010 and October 2011 to tackle inflation. But it also warned that the fall in inflation is temporary, so crude oil prices still pose a risk.
The RBI has already cut the cash reserve ratio, the share of deposits banks must maintain with the central bank, by 125 basis points in two moves since late January to 4.75 per cent, making more money available for lending.
Following is how loans are set to get cheaper if the RBI slashes interest rates by quarter basis point:
- On a loan of Rs 20 lakh for 15 years one could save at least Rs 307.
- For Rs 20 lakh loan for 20 years one could save Rs 332.
- And for a Rs 30 lakh loan for 30 years one could save at least Rs 449.
The RBI said it would shift the focus to arresting declining growth while keeping inflation under control.
"Inflation expectations moderated in the fourth quarter of 2012-13 but remain high. With significant upside risks to inflation, monetary policy needs to keep them anchored, while shifting the balance of policy to arrest the deceleration in growth momentum," RBI said on the eve of annual monetary policy.
RBI in its Macroeconomic and Monetary Development Report also cautioned that inflation is likely to remain "sticky" at the current level through out the fiscal (2012-13). Finance Minister Pranab Mukherjee too described the rising food inflation as "disturbing".
The inflation, according to latest data, was 6.89 per cent during March. As regards growth, it declined to three year low of 6.9 per cent during 2011-12.
"Monetary policy needs to support growth without risking external balance or inflation by excessive fuelling demand," it said.
So far RBI's stance was checking inflation and it raised interest rates 13 times since March 2010 which impacted industrial output due to costly credit. During April-February period 2011-12, the IIP fell to 3.5 per cent, as against 8.1 per cent in same period in 2010-11.
Therefore, it is widely expected that the central bank would cut interest rate in the annual policy to be announced on Tuesday.
The Reserve Bank, in its review in March gave indications of peaking of the interest rates cycle in line with the evolving growth inflation dynamics.
(With additional inputs from agencies)