RBI pauses for breath. So can you | india | Hindustan Times
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RBI pauses for breath. So can you

The good news is that your monthly loan installments are not going up again as they have done for well over a year now. The bad news is that you may have to wait longer before bankers think it is time to reverse the cycle. HT reports. Rate mood: Stop, look and go

india Updated: Dec 17, 2011 02:10 IST

The good news is that your monthly loan installments are not going up again as they have done for well over a year now. The bad news is that you may have to wait longer before bankers think it is time to reverse the cycle.

This means that if you are buying a home or car loan, the chances of the loan installments going up again have reduced.

With the Reserve Bank of India (RBI) deciding not hike its key policy rates at its policy review on Friday, there is an alluring pause in the tightening of the money supply by the http://www.hindustantimes.com/images/HTPopups/171211/17-12-11-buss25.jpgcentral bank to rein in demand – and through that, runaway inflation. But banks are in no hurry to ease up.

Experts suggest that borrowers expecting a rise in income, should go for floating rates instead of fixed rate loans.

“The interest rate cut will not happen in a hurry,” said N Seshadri, executive director, Bank of India. “Banks will cut lending rates when their cost of funds come down which will happen when there is cut in the repo rate by the RBI,” he added.

The Reserve Bank, as expected, left unchanged the repo rate – at which it lends to commercial banks – at 8.5%.

Bank customers might have to wait until the new financial year starting next April to see lending rates come down again.

“Going by the current trend, the likelihood of a repo rate cut by the RBI in the current fiscal year is very low,” said Anis Chakravarty, director and economist at consulting firm Deloitte.

“RBI is expected to continue its pause if inflation is below the level of 9.5%,” he added. Currently, the figure is at 9.11%.

Financial planners say young borrowers should go for floating rates while seniors should go for fixed loans.

“Those who are in their youth and are sure that their income will go up in future should go for floating rates while those who do not expect a rise in income or are of more than 50 years should fix their interest rate on home loans for one year,” said Vipul Patel, director, Home Loan Advisors,