Manoj Kumar and Indivjal Dhasmana / PTI
New Delhi: Finance Minister P Chidambaram on 6 August 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 told PTI.
He was responding to a query if there was an effort by the government and the Reserve Bank 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,” the Minister said.
He pointed out it was not for the first time that interest rates had gone up. In 1999-2000 and 2000-01 also, interest rates were high.
“What you need to look at is the real interest rate. With inflation around 6%, it works out to be only 6%. When inflation comes down, interest rate will also come down,” Chidambaram said.
RBI had taken some policy initiatives to moderate over 30% growth in housing and consumer finance. Some of the 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.
Chidambaram said RBI has clearly indicated it would continue to follow a tight monetary policy. But factors such as fuel and food prices were beyond its control.
“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, of course, you have to tighten monetary aggregates. That is what RBI is doing,” he said.
According to RBI’s quarterly review of monetary policy, growth in housing and real estate loans has decelerated modestly to 24.6% and 69.8% respectively during January-March 2007. However, credit to these sectors continue to remain at elevated levels.
The Finance Minister said current inflation was fueled only by primary commodities — both food and non-food articles. It was too early to say whether inflation had come down, he said.