Home Loans, Car Loans, And Personal Loans To Become Expensive. Here’s Why…

  1. The slosh of liquidity the system experienced post demonetisation has receded gradually. In fact, we are facing a mild liquidity crunch, which is visible by the rising interest rates in the overnight borrowing market. In plain English, the money is getting expensive.
  2. The difference in India’s 10-Year benchmark bond yield and the repo rate has risen alarmingly high to 189 basis points. Moreover, the real rate of return measured by the difference between retail inflation and benchmark bond yields is over 300 basis points now. Both these factors indicate that we might have already seen the end of the easing cycle. And, RBI is likely to increase policy rates sooner rather than later. Perhaps, the market has already discounted the rate hike of 25 basis points.
  3. The market is likely to see the oversupply of debt issuances, which might put pressure on the yields. Falling currency, likely chances of rising inflation and monetary policy normalisation in the U.S. might accentuate the further hardening of bond yields in India.
  4. Credit demand from corporations has also seen some improvement lately.

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