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Why EMIs are still high

business Updated: Jun 18, 2013 02:13 IST
HT Correspondent

Why are your EMIs not falling despite a cut of 1.25 percentage points in the policy rates by the Reserve Bank of India in the past 12 months?

Commercial banks, who are supposed to take the cue from the central bank and follow suit, are simply not budging, leaving hundreds of thousands of home loan customers stuck with higher payouts every month to service their loans.

Costlier crude oil, which has knocked up prices of most goods, and rising gold imports have widened the current account deficit (CAD) — the gap between dollar inflows and outflows — to record levels, a worry for an economy that is slowing down.

"The Reserve Bank’s monetary policy stance will be determined by how growth and inflation trajectories and the balance of payments situation evolve in the months ahead," said RBI governor D Subbarao. http://www.hindustantimes.com/Images/Popup/2013/6/18_06_13-buss25b.gif

India’s CAD hit a record 6.7% of GDP in October-December, but so far the government has been able to finance dollar payment obligations without dipping into its pool of foreign exchange reserves.

The rupee’s free-fall, however, can turn out to be a party spoiler.

"It is only a durable receding of inflation that will open up the space for monetary policy to continue to address risks to growth," he said.

"There will be no change in lending rate as the cost of deposits continues to be very high," said VR Iyer, CMD, Bank of India.

Industry leaders were disappointed by the RBI’s stance. The CII said the central bank should have addressed concerns to revive industrial growth.