Announcement

Collapse
No announcement yet.

RBI cuts CRR by 50 points..will home loan be cheaper now?

Collapse
X
Collapse

RBI cuts CRR by 50 points..will home loan be cheaper now?

Last updated: March 19 2012
36 | Posts
7055 | Views
  • Time
  • Show
Clear All
new posts

  • RBI cuts CRR by 50 points..will home loan be cheaper now?

    MUMBAI: Indian equities markets cheered an unexpected cut in the cash reserve ratio ( CRR) by the Reserve Bank of India Tuesday as a benchmark index soared to rule 179 points higher soon after the decision was announced.

    After nearly two years of tight check on money supply to tame inflation, the RBI took steps to infuse more liquidity in the system by reducing the cash reserve ratio by 50 basis points in a bid to help industry out of the current downturn.

    The cash reserve ratio (CRR), the amount against deposits which commercial banks have to keep as liquid assets such as cash, has been lowered by 50 basis points to 5.5% from 6%
  • #2

    #2

    Re : RBI cuts CRR by 50 points..will home loan be cheaper now?

    Liquidity in the system will increase now which is good for infra firms like L & T , Jaypee Infratech, etc. It will be easier for them to borrow now. But, do not expect fall in home loan rates till rate cuts are announced. RBI lends to banks at 8.5 % which is unchanged. That should start coming down by March. Any way , the worst is over for infrastructure companies IMO. Things should get better now on.

    Comment

    • #3

      #3

      Re : RBI cuts CRR by 50 points..will home loan be cheaper now?

      The CRR cut is a positive move for the banks as there was a lot of liquidity pressure. It also provides direction that going forward in FY13 the RBI might start reversing the rate cycle

      Comment

      • #4

        #4

        Re : RBI cuts CRR by 50 points..will home loan be cheaper now?

        The CRR cut does not affect the home loan rate. Its just that bank can give more lending or will have more money to lend.
        But it does not imply that home loan rate will be lowered.

        Comment

        • #5

          #5

          Re : RBI cuts CRR by 50 points..will home loan be cheaper now?

          No change in EMIs; banks to have more funds

          There is no immediate respite to home, auto and corporate loan borrowers in terms of their monthly equated instalments (EMIs) but with the RBI reducing the cash reserve ratio (CRR), banks will have more money to lend.

          After the Reserve Bank unveiled the third quarterly review of the monetary policy, several bankers said that they may not go in for rate cut immediately.

          However, a few like Oriental Bank of Commerce Executive Director S C Sinha said the CRR cut would "definitely lead to reduction in interest rates."

          Chairman of the Prime Minister's Economic Advisory Council and former RBI Governor C Rangarajan said that as the primary injection of Rs 32,000 crore liquidity (through CRR cut to 5.5 per cent from 6 per cent) would have a multiplier effect, the interest rates would soften.

          "The improvement in liquidity condition will automatically have effect on the interest rates. It would lead to softening of interest rates," he said.

          CRR is the percentage of bank deposit that lenders have to keep with the RBI. The new rate would be effective from January 28.

          Since March 2010, the retail and corporate loans have become expensive for the borrowers but the fixed deposit holders had benefited from the 375 basis point hike in the short-term lending rate by the RBI.

          Canara Bank Executive Director A K Gupta said banks would now get much-needed liquidity. This will also allay fears of further hike in base rate.

          "Probably, interest rates may not come down immediately," he said, adding, the banks will however will have more cash at their disposal.



          No change in EMIs; banks to have more funds - Indian Express
          Please read IREF rules | FAQ's

          Comment

          • #6

            #6

            Re : RBI cuts CRR by 50 points..will home loan be cheaper now?

            No, minimum 1 year lag for lower rates in home loans.

            Corporate loans wo RE firms will find it easier to roll over now.

            Ultimately, all this is building up for positive impact on prices.

            RE prices will only go up because of this, negating impact of home loans.

            Also, banks will probably come up with some variant of the teaser rates and wont touch base rates. So existing loans will get shafted as always.
            Venky (Please read watch a or before posting)

            Comment

            • #7

              #7

              Re : RBI cuts CRR by 50 points..will home loan be cheaper now?

              Guys,

              Instead of CRR cuts or Repo predictions. You should concentrate on assest allocation and move smartly. A .25 or .50 basis decrease in your interest will not make a big impact rather delays or bad location or too much allocation in one asset class like property.


              Things will move up or down you need to be wise to have your risk planning in place.

              Comment

              • #8

                #8

                Re : RBI cuts CRR by 50 points..will home loan be cheaper now?

                Please find below few most frequently used jargons for the members with non finance background. It will help you to understand the implications of macro economic decisions:


                What is SLR : Every bank is required to maintain at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). RBI is empowered to increase this ratio up to 40%. An increase in SLR also restrict the bank’s leverage position to pump more money into the economy.

                What is CRR : CRR means Cash Reserve Ratio. Banks in India are required to hold a certain proportion of their deposits in the form of cash. This minimum ratio (that is the part of the total deposits to be held as cash) is stipulated by the RBI and is known as the CRR or Cash Reserve Ratio. Thus, When a bank’s deposits increase by Rs100, and if the cash reserve ratio is 6%, the banks will have to hold additional Rs 6 with RBI and Bank will be able to use only Rs 94 for investments and lending / credit purpose. Therefore, higher the ratio (i.e. CRR), the lower is the amount that banks will be able to use for lending and investment. This power of RBI to reduce the lendable amount by increasing the CRR, makes it an instrument in the hands of a central bank through which it can control the amount that banks lend. Thus, it is a tool used by RBI to control liquidity in the banking system

                What is SLR Ratio or What is SLR Rate : Every bank is required to maintain at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). RBI is empowered to increase this ratio up to 40%. An increase in SLR also restrict the bank’s leverage position to pump more money into the economy.

                Repo (Repurchase) rate: The rate at which the RBI lends shot-term money to the banks against securities. When the repo rate increases borrowing from RBI becomes more expensive. Therefore, we can say that in case, RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate.

                Reverse Repo rate: The rate at which banks park their short-term excess liquidity with the RBI. The banks use this tool when they feel that they are stuck with excess funds and are not able to invest anywhere for reasonable returns. An increase in the reverse repo rate means that the RBI is ready to borrow money from the banks at a higher rate of interest. As a result, banks would prefer to keep more and more surplus funds with RBI.

                Thus, we can conclude that Repo Rate signifies the rate at which liquidity is injected in the banking system by RBI, whereas Reverse repo rate signifies the rate at which the central bank absorbs liquidity from the banks

                Cut in CRR will definatley fuel in liquid money into the sytem which will not result into reduction in home loan interest rate but will build in positive sentiments in the economic system resulting slightly better economic growth.
                Last edited January 24 2012, 11:24 PM.

                Comment

                • #9

                  #9

                  Re : RBI cuts CRR by 50 points..will home loan be cheaper now?

                  RBI cuts CRR,home loans to get cheaper

                  TIMES NEWS NETWORK

                  Mumbai: Home loans and other loans to individuals and businesses are set to become cheaper with Reserve Bank of India releasing Rs 32,000 crore to banks through a half percentage point cut in the cash reserve ratio (CRR) on Tuesday,a step which is also aimed at driving growth.

                  The CRR,which is the level of deposits that banks have to mandatorily maintain with RBI,was reduced to 5.5% from 6%.This marks RBIs first reduction in CRR since January 2009 when it had released funds to stimulate demand in the wake of the Lehman Brothers crisis.

                  Bankers that TOI spoke to said that interest rates are headed down and it was a matter of time before lending rates also dip.Pratip Chaudhuri,chairman of the countrys largest lender State Bank of India said that interest rates will come down on loans to certain sectors where there is good growth and low delinquencies.However,banks might be circumspect about reducing deposit rates since there are many tax-free schemes offering returns ranging from 8.3% to 8.5%.

                  Sensex crosses 17,000-mark after rate cut,closes 1.46% up

                  The BSE sensex crossed the 17,000 mark to a 10-week high as RBI cut CRR to infuse liquidity in the system,before easing a little to close at 16,996 up 244 points or 1.46% since Mondays closing.

                  Rupee strengthens,touches 49 on RBI action,FII inflows

                  For the first time in over two months,the rupee touched the 49-mark against the dollar in intra-day trade on RBIs CRR action and expectations of higher foreign investment inflows,before settling at 50.07.





                  -TOI

                  Comment

                  • #10

                    #10

                    Re : RBI cuts CRR by 50 points..will home loan be cheaper now?

                    Subbarao puts onus on Govt ,Slash in CRR may be RBI’s Curtain-Raiser to Rate Cuts


                    Higher-than-expected 50-bps cut in cash reserve requirement raises hopes of cheaper loans, but guv says lower rates will depend on govt’s efforts to rein in fiscal deficit


                    Industry and consumers can look forward to lower cost of funds for the first time in two years after the Reserve Bank of India cut the cash reserve requirement of banks, likely to be the precursor to interest rate cuts later this year.


                    But using unusually blunt language, Governor Duvvuri Subbarao made it clear that lower rates will depend on the government taking credible steps to rein in fiscal deficit.


                    “In the absence of credible fiscal consolidation, the Reserve Bank will be constrained from lowering the policy rate in response to decelerating private consumption and investment spending,” said Subbarao. “The forthcoming Union Budget must exploit the opportunity to begin this process in a credible and sustainable way.”


                    The pace of decline in borrowing costs is thus likely to be slower and punctuated unlike 2008, when the RBI cut rates 4.25 percentage points in 10 months after the credit crisis in 2008, as the possibility of resurgence in inflation, high government borrowings and a weak rupee could destabilise the economy.


                    The biggest and immediate beneficiary of a 50-basis-point cut in the cash reserve ratio (CRR) will be the government as yields fall. But if unbridled borrowing by the state continues, it could nullify monetary efforts to revive economic growth.


                    Investors cheered the policy reversal that brought CRR down to 5.5%, which will release . 32,000 crore into the system. The benchmark Sensex rose 1.6% to 16.995.77 and the rupee was firm. But bond yields jumped to 8.35%, from 8.17%, on speculation that open market operations (OMO), the oxygen that kept the banking system flush with liquidity, could be discontinued after the CRR cut. Growth Estimate Lowered to 7%


                    Repo, the rate at which the central bank lends to banks, has been retained at 8.5%. Reverse repo, the rate it pays banks for parking surplus funds with it, and the marginal standing facility remain unchanged.


                    “The reduction can also be viewed as a reinforcement of the guidance that future rate actions will be towards lowering them,” the governor said in his review. “It is difficult to determine the pace, timing and magnitude of the reduction”, as government finances and suppressed inflation are wild cards.


                    Subbarao, who stuck to his anti-inflationary stance despite falling industrial output and calls for an interest rate cut for nearly six months, lowered the economic growth estimate for fiscal 2012 to 7%, from 7.6%. But he left the inflation forecast at 7% as prices of inputs such as diesel had been held down by administrative action, which combined with a weak rupee could stoke prices again.


                    “We don’t think there is sufficient time between now and March 15 to produce a sufficient degree of comfort regarding inflation,” said Gunit Chadha, CEO, Deutsche Bank India. “If liquidity tightness persists, there may well be further CRR cuts in March, but we think the first rate cut in this cycle would only come in April.”


                    Finance Minister Pranab Mukherjee may overshoot his target of borrowing for the fiscal, which has been twice revised upwards, as slower economic growth upsets revenue calculations and a weak stock market makes the Rs 40,000-crore disinvestment target unachievable.


                    If borrowing remains high, rate cuts may take longer.


                    The government raised its borrowing limit by Rs 93,000 crore to Rs 5.1 lakh crore this fiscal, which could take fiscal deficit to more than 5.5% of the gross domestic product that is considered high. About 83% of revised gross and 80% net market borrowings were raised by January 16, leaving room for speculation that the limit may be breached.


                    “A repo rate cut in March looks unlikely,” says Sonal Varma, economist at Nomura. “The RBI stated that rate cuts will be conditional on a sustainable moderation in inflation and strong signs of fiscal consolidation. With the Union budget due around mid-March and core inflation likely to ease substantially only in March, we believe that the first repo rate cut is likely on April 17.”


                    The Wholesale Price Index could start climbing after falling to a two-year low mainly due to seasonal factors such as vegetable prices. Manufacturing index is still rising at 7.7%, though it is down from 8.1% in October.


                    Crude oil prices remain high and the fall in prices of other agricultural commodities could also be short-lived due to easy monetary policies in the developed markets where rates are just about 1%.


                    “Supply limitations and continued ultra-accommodative monetary policies in major advanced economies pose upside risks to commodity prices in 2012,” said the governor. “Currency depreciation witnessed in the second half of 2011 and the lagged passthrough to domestic prices could also add to inflationary pressures.” The next mid-quarter review of monetary policy will be announced on March 15 and for the next fiscal on April 17.

                    -ET

                    Comment

                    Have any questions or thoughts about this?
                    Working...
                    X