Prospective homebuyers who were eagerly looking forward to buy property in India in the near future hoping interest rates would fall further may not find a better time than today to buy a property. According to experts in the field of finance, interest rates are highly unlikely to fall further. While over the past one year, interest rates have fallen significantly, a further reduction in the rate of interest charged from borrowers is unlikely and hence today is as good a time as any to invest in property, especially if one is waiting to pay a lower EMI in the future as a result of lower interest rates. Here is why
The Marginal Cost of Lending Rate (MCLR)
Most home loans are linked to one-year Marginal Cost of Funds Lending Rate which had been pulled lower in the recent past leading interest rates to drop with it. Aggressive rate cuts by the RBI were one reason why the MCLR dropped. However the RBI has changed its current stance from that that of accommodative to neutral which is far less likely to lead to lower interest rates in the future. Additionally since lower interest rates mean more inflation (inflation is something the RBI is concerned about and is taking action to tackle) the chances of lower interest rates in the future are slim.
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According to this property website, demonetization was an additional reason why interest rates fell in the recent past. Because of a glut in the availability of cash during demonetization the MCLR was pulled lower. Notably most of the MCLR’s recent deductations happened between November of last year and January of this year, precisely when the impact of demonetization was most felt.
Liquidity in the Market
Liquidity in the market has fallen from a high of 7 lakh crores in January to 4 lakh crores today. The RBI has taken steps to bring inflation under control by removing liquidity from the market through instruments such as MSS Bonds, and by using Cash Management Bills. The RBI is concerned about liquidity and intends to bring it under control sooner rather than later. Hence the beneifts of excess liquidity in the market have already been passed on to consumers in the form of lower interest rates and rates are unlikely to fall further as the RBI reigns in liquidity from the market.
Once the RBI removes the excess liquidity of 4 lakh crores from the economy interest rates will rise further, thus according to this real estate website, the chance of lower interest rates anytime soon is slim and so interest rates on home loans are very unlikely to drop any lower than they are today.