Wait a while to see EMIs dip

New Delhi, Dec. 18 -- Home owners reeling under the burden of high interest rates will have to wait a little longer to see their equated monthly installments (EMIs) down as banks are unlikely to cut lending rates on housing loans before the Reserve Bank of India (RBI) slashes its signal repo rate. RBI on Tuesday left its policy rate at which banks borrow from central bank, unchanged in mid-quarter review monetary policy but the good news for consumers is that the central bank is likely to cut repo rate at the end of January, as governor Duvvuri Subbarao painted a picture that set the stage for a rate cut in the new year.

"I do believe that in the next quarter or starting next quarter interest rates should see a downward trend," said Chanda Kochhar, managing director and CEO, ICICI Bank. "However, it would be difficult to say how fast, how sharp, how early," she said.

A lower repo rate brings down the borrowing costs for banks, prompting them to slash interest rates for final home, auto and corporate borrowers. The RBI's third quarter policy review is due on January 29.

"Banks will cut lending rates only after RBI cuts the repo rate because cost of funds for lenders is still high," said M Narendra, chairman and managing director, Indian Overseas Bank.

Experts believe that sliding gross domestic product growth and cooling inflation will encourage RBI to cut rates in January.

"This (falling GDP growth and inflation) is likely to prompt the central bank to ease its repo rate by 0.25% points in the January review and perhaps again by a similar magnitude in March," said Abheek Barua, chief economist, HDFC Bank.

Published by HT Syndication with permission from Hindustan Times.