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Car and home loan rates could rise soon

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Car and home loan rates could rise soon

There are expectations of car and home loans becoming costlier in the coming months. Bank interest rates are steadily changing their direction and are again increasing steadily. Kotak Mahindra Bank, Yes Bank, Axis Bank and IndusInd Bank are among leading private players who have already increased their benchmark MCLR (Marginal Cost of Funds Based Lending Rate) by around 5-10 basis points. This will be effective from January, 2018, onwards. According to experts, this rise in interest rates can be attributed to the higher price payable for deposits over the last couple of months. Certificate of deposit rates have gone up by 50 basis points across multiple tenors. RBI may look to keep rates relatively stable in the current scenario and the bank lending rates may not be lowered at the moment as per several experts.

Under the MCLR, banks usually have varying tenors which range between one month, overnight, six months, three months, one year, three years and two years. Interest rates for loans tied to MCLR will increase post revision. The RBI has reportedly kept 6% as the policy rate post acceleration in inflation levels. There are anxieties linked to government borrowings as well. This has led to an increase in yields from government bonds and the 10-year benchmark bond touched 7.38% which is a high in 18 months. IndusInd Bank and Yes Bank have confirmed an increase of MCLR rates to the tune of 10 basis points.

According to experts, short-term rates are steadily increasing and the market reactions are highly unpredictable. The changes in interest rates are simply reflective of these conditions at present. The direction of interest rates is what interests the market right now. Deposit rates have increased and this is why the lending rate had to be tweaked accordingly.

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