More cuts in home loan rates expected

At a time when the equity markets are being bombarded with bad news, borrowers have been having a good time. The interest rates have been coming  down steadily and more banks have come out with home loan interest rate cuts. As a result, home loans of most banks have slipped below the 11 percent level and indications are that the stage is set for the next round of rate cuts. 



If the interest rates are showing a negative bias, it is largely due to the changes in the macroeconomic factors. As you would have noticed, inflation, which pushed the central bank to tighten the monetary situation has eased considerably and is well within the manageable range of six percent. The outlook for interest rate is even better with the general expectations of a further fall in the index. In fact, economists have been vocal that the inflation rate could slip to 3-4 percent in the coming two quarters. 



While such a forecast looked unthinkable 2-3 quarters ago, the change in scene has been a result of a combination of various factors and crude oil price dropping has been the primary driver. The fall in crude oil price has been more dramatic than its rise to above USD 140 a barrel during the last year. The general weakness in the global economy has pushed the prices further down. The effect of crude oil price dropping has been significant on commodity as a sector. The price fall has been sharp in the last quarter in all metals. Barring gold, most commodities have fallen by 30-40 percent and this augurs well for the interest rate scenario as it ensures inflation remains under check. 



For the borrower, that should be good news as lower inflation would enable the banks to lower the home loan interest rates. Since the downtrend has affected the borrowing sentiment to a great deal, banks are likely to step up their efforts to push lending. At present, however, banks have been wary of lending but the deposits they mobilise will have to find their way into loan books as lending is an integral part of financialservices.