Despite Reserve Bank of India's money tightening measures, home loan and personal loan rates are likely to remain flat. Most bankers expect interest rates to remain stable.
The RBI hiked the Cash Reserve Ratio that banks have to keep with the central bank by a 50 basis points (0.5 per cent) to 7 per cent from 6.5 per cent in the 'Monetary Credit Policy' announced on July 31, 2007.
This move is likely to take away Rs 13,500 crore from the banks into the RBI's coffers. This money would have otherwise been used by banks to on lend to their customers like you and me.
Hence the current money tightening measures will not have an impact on interest rates. This is because many banks were planning to reduce rates on home loans, personal loans and fixed deposits. Now those plans will be on hold for at least three months, say bankers. Some banks had reduced home loan rates by 25 to 50 basis points in the last month.
ICICI Bank, which had raised its floating home loan rate by 3 percentage points to 12 per cent over a one-year period till May 2007, have recently, dropped it to 11 per cent.
HDFC too brought down the rates to 11 per cent as a special monsoon offer, which it extended for one more month till August 15, 2007.
"It is too early to talk about the impact of the CRR hike. But I can definitely say that, at present, it will not reflect on the current interest rates, be it in the retail or other sectors. The CRR hike was essentially to mop up the liquidity in the system," said a Standard Chartered Bank official.
Bankers are willing to wait out for a few weeks to get a clearer picture.
"The trigger to increase the CRR is the current liquidity in the market. Speaking about its impact, banks are unlikely to raise interest on a short-term basis", said a State Bank of India official.
The current phase of monetary policy tightening began in September 2004. The CRR changed five times, increasing from 4.5 to 6.5 per cent.
In the current policy announcement, the key interest rates like repo rate and reverse repo rates have not been untouched. However, since September 2004, the reverse repo rate rose six times and the repo rate rose seven times-from 6 to 7.75 per cent.
In 2007, banks raised their lending rates in response to an increase in repo/reverse repo rates.
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