Finance minister ruled out any quantitative ceiling on home loans and said interest rates would moderate in tandem with inflation.

"There is demand for housing loans. We cannot have quantitative ceilings for housing loans because there is aspiration (for homes),’" he said in response to a query on whether there was an effort by the government and the Reserve Bank of India to moderate the growth in housing and consumer loans. "I do not think that it is right to put restrictions on housing loans. Since there is a rather high growth, it could lead to a bubble. The RBI was right in increasing risk weight and making some regulatory prudential requirements to cool down the sector," he said, pointing out that it was not for the first time that interest rates had gone up. In 1999-2000 and 2000-’01 too interest rates were high.

The RBI had taken some policy initiatives to moderate over 30% growth in housing and consumer finance. Some leading financial institutions and banks have also reported a fall in disbursal of such loans. The interest rate on home loans have moved from around 8% to over 11% over the past two years, adversely affecting the monthly budget of home buyers. The RBI had clearly indicated that it would continue to follow a tight monetary policy. But factors such as fuel and food prices were beyond its control. The RBI monetary policy works on core inflation. That is, minus fuel and minus food items. This is the case all over the world. So, when fuel and food drive inflation one has to tighten monetary aggregates.

According to the RBI’s quarterly review of monetary policy, growth in housing and real estate loans had decelerated modestly to 24.6% and 69.8% respectively during January-March 2007.


Source: Times of India dated 07/08/07
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