India keeps interest rates unchanged

The quarterly review of the Reserve Bank of India looked at various indicators in the economy and decided that the best decision as of right now would be to keep interest rates exactly where they are.

While inflation remains a concern in the eyes of many, a strong economic growth factor of 8.5 per cent is projected for the 2008 fiscal year.

The decision to keep interest rates where they are appears to have been done in direct opposition to the perceived threat of inflation. However, with inflation being the primary concern of the Reserve Bank of India at the present moment in time, the property markets of the country are most certainly going to suffer.

It was this same concern about inflation that caused a number of increases in the interest rate over 2007 and each of those increases made it that much harder for property investors to get together the needed capital for a land purchase. In fact, the higher interest rates did nothing to stop price increases in property values across the country and with many urban centres setting new records for property values, prospective home owners decided to put off the big event.

This resulted in a general downturn in demand, something the country's property market has really started to feel in 2008. Over the second half of the year last year, home loan transactions fell by almost 40 per cent with much of the attrition being seen in the largest cities in the country. These are the same cities that hold the attention of foreign property investors, so the interest rate hikes very likely had a much broader effect on the property markets than even the most clear-sighted Reserve Bank of Indian official could have predicted.

It was with all of this going on that the property sector was hoping for a rate cut to be announced, but instead the Reserve Bank of India's decision to keep rates where they are might continue to hurt real estate companies and individual investors working within India's borders.

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