Last year has been not very good year for the home buyers. Because of the high interest rates for the home loans and high inflation rates. It is negatively impacted the real estate companies with less sales compere to the previous years. It is not only that home loans interest rates are high, all the loans become expensive because of the RBI’s monetary policy to tighten the cash liquidity in the market.
It is good news that RBI may reverse its stance on the monetary policy to increase the liquidity. This would result in the relaxation on interest rates pressure. This article explores the reason why interest rates increased and how it will come down in the near future?. If you have any doubts, please post it in the comments section. Subscribe to our future articles here.
Why interest rates are increased by the banks?
If the banks don’t have the enough money to lend for its customers then they have to raise money from the public by the way of increasing the fixed deposit interest rates. When banks increasing the interest rates for deposits, the loans have to be more than deposit’s interest rates to be profitable. You may ask the question why suddenly banks become poor and don’t have enough money?. If the cash availability is more in the market, then it leads to the more consumption in the market it leads to the increase in prices. The the inflation will shoot up to the higher level.
If inflation is high, it will impact the common man’s daily needs. Govt. has to act and reduce the inflation rates. The only way (not exactly but our govt. think so) to contain the inflation raise is to tighten the monetary policy and reduce the cash liquidity in the market. If you want to understand more on how RBI can tighten the cash flow, please read the following article.
Current Situation of the market
The current situation of the market is that inflation has come down (RBI thinks like that) and it is time to reduce the tightening of the cash liquidity. The news coming from the higher authority is that in the next meeting RBI would announce the decrease in the key policy rates. If that would happen, slowly banks will start reducing the interest rates in the coming months. In the past one year, RBI has increase the key policy rates for more than 12 times. It is the first time that RBI has increased such a more number of times.
If the inflation is in control for several months, the decrease in the policy rates will continue and the home loans interest rates would come down. But, one thing is that there won’t be any increase in the interest rates because it is already in the peak. We can expect the interest rates to come in the near future.
If you are planning to buy a house and apply for the home loans, please keep this in mind. It is good news for the home buyers and the builders. We can expect some good news from the market in 2012. Hope that the inflation level is under control so that the interest rates would not go up once again with in a year. This is a cycle and it can not be avoided. Hope this article is useful for you. If you have any doubts, please post it in the comments section.
Subscribe to our future articles here.