Home Loan Rates to Rise: RBI hikes CRR

The government is more concerned about the elections, and inflation is the one which will decide whether the present government will come back to power once again or not.
So, taking strict measures so as to counter inflation, the RBI yesterday increased the CRR rate by 50 basis points or 0.5%, which will squeeze in 18,500 Crore Rupees from the market.

There were some good signs few months before, when major banks went for a rate cut giving respite to the home loan and other loan payers. But it seems that this period of low interest rates was short lived.

It appears an almost certainty that the loan rates for various loans like home loan, car loan, two-wheeler loan, education loan etc. are set to increase by anywhere between 0.25% to 0.75%.

Related: Home Loan: Fixed v/s Floating? , HDFC cuts home loan rates & Other banks rate cut (SBI, Canara, Union Bank)

Whether floating or fixed interest rate home loan, banks are quick to pass on the increased loan rates to the customers, as explained in this article.. However, the same is not true if the rates are reduced. Despite so many banks reducing the rates, ICICI bank, which is the largest private bank in the loan market, did not reduce the rates. It will anyways again increase the rate following the CRR increase.

The CRR would be hiked by 0.25 per cent from April 26 and by an identical percentage from May 10.
Year-on-year inflation, which was 3.83 per cent during the last credit policy in January, had gone up to 7.41 per cent on March 29 before marginally falling to 7.14 per cent on April 5.


The only hope that lies there is concerning the RBI meet on April 29th. If there is any control on inflation till then, then one can expect to see some respite. Bankers said the move was expected but would wait and watch the credit policy to be unveiled on April 29 before taking a call on interest rates. However, some of them felt they were left with very little option but to hike their rates with the cost of funds going up following the CRR increase.

Its once again the time of high inflation and low payouts. Personally, I was not at all happy with the mass pleasing budget, all it will do is worsen the economy.

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