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cut government debt and a smaller deficit are expected to cut interest rates

<p><strong>MUMBAI:</strong> Lenders believe that the interim budget has set the stage for more affordable home loans and a general reduction in interest rates. The reduced fiscal deficit of 5.1% has led to borrowing being nearly Rs 1 lakh crore lower than anticipated. With a significant portion of government spending directed towards capital expenditure, it is expected to be non-inflationary, making it easier for the RBI to consider lowering rates in the future.</p>
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<p>By maintaining a lower fiscal deficit and reducing central borrowings, the Central government is perceived to be subtly urging the RBI to enhance liquidity and soften interest rates. The underlying message from North Block is clear: having fulfilled its role, it is now up to the RBI to encourage private investment by facilitating a decrease in lending rates.</p>
<p>Dinesh Khara, Chairman of the State Bank of India, expressed confidence that improved fiscal numbers would contribute to lowering interest rates. While lenders anticipate the RBI to reduce interest rates only in the latter half of 2024, there is a general expectation of rates softening.</p>
<p>The financial sector also foresees a potential decline in home loan rates due to the two affordable housing schemes introduced by the government. The PMAY Grameen initiative, aiming for an additional two crore houses in the next five years, along with incentive schemes for the middle class in urban areas, slums, and unauthorized colonies, is perceived as providing subsidies that could improve the viability of home loans.</p>
<p>A.S. Rajeev, MD & CEO of Bank of Maharashtra, noted that the reduction in the fiscal deficit is a supportive factor for lower interest rates. He anticipates the interest rate cycle to begin softening in the second quarter of 2024-25, considering various factors such as inflation, supply chains, and the demand-supply situation.</p>
<p>Zarin Daruwala, India Head of Standard Chartered, emphasized the consistent theme of fiscal consolidation and increased capital expenditure in the budget. This, she believes, will trigger lower interest rates and promote private investments.</p>
<p>Aditi Nayar, Chief Economist at ICRA, highlighted that the higher-than-expected capital expenditure and lower-than-projected fiscal deficit indicate healthier expenditure quality. She believes that faster fiscal consolidation and reduced borrowings will contribute to cooling yields in the coming year, provided revenue and capital receipt estimates remain credible.</p>