According to ET Now the RBI is planning a ‘funding for lending’ scheme, under which the central bank may lend money to banks at a 1-2% cheaper rate.
By ET Now | 17 Sep, 2013, 02.11PM IST | ET Now
NEW DELHI: Waiting for the Reserve Bank of India (RBI) to cut interest rates before deciding on buying that home or a car? You may not need to! According to ET Now the RBI is planning a ‘funding for lending’ scheme, under which the central bank may lend money to banks at a 1-2% cheaper rate. This in turn will allow banks to lend to potential consumers at a lower rate.
“The special window allows banks the option of cheaper refinancing from the RBI. This cheaper refinancing can be anywhere to the tune of 1% to 2% lower than market rates,” reported ET Now.
This window was first used in order to boost consumption during former RBI governor YV Reddy’s tenure. With less elbowroom with the RBI to cut key policy rates, this move is an attempt by the government to bring down effective rates for home and auto loans.
“High interest rates are denting consumption, so to boost consumption, this window can be used. The moment there is cheaper refinancing available for banks to avail, it will result in cheaper home and auto loans,” said ET Now.
Both the real estate and auto sectors are reeling under the effects of a slowdown. While inventories are piling up in the housing sector, auto is also facing the worst slowdown in some years. According to ET Now sources, the move has been debated upon both in Finance Ministry and RBI.
While some analysts are apprehensive about the effect this measure may have in stoking an already high inflation, sources close to the decision making process told ET Now that since industrial inflation is sub 4%, the boost to consumption would be manageable.
While the refinance window measure is expected to be announced soon, it is unlikely to be a part of the new RBI governor Raghuram Rajan’s monetary policy review on September 20. “There will be various other measures that will be deliberated upon. This is still in discussion stage but is actively being weighed upon,” said the channel.
The measure, if it comes, will be in the backdrop of both the auto and real estate sector seeking government intervention to provide an impetus to slowing consumption.