Sunday, October 2, 2022
HomeThe grace period is coming to an end: loan interest rates will...

The grace period is coming to an end: loan interest rates will continue to rise and the market will continue to correct

AThe American Central Bank is trying to quickly withdraw from the Covid stimulus measures. The Federal Open Market Committee (FOMC) has decided to speed up bond repurchases. It intends to withdraw completely by March 2022 from measures taken to increase liquidity in the market.

Contrary to expectations, interest rates are likely to rise in March instead of June. Let us think about what would happen if the US Federal Reserve raised rates. This decision affects everyone from the super-rich to the common man. What changes will happen in India with the tightening of cash flow?

Loan interest rates will go up
If the RBI moves in the direction of the US Federal Reserve, the repo rate will increase by the middle of the 2022 calendar year. It will cause interest rates on loans and deposits to go up. Although the rate hike will not be immediately reflected in personal loans with relatively high interest rates, interest rates on home loans linked to the repo rate (fixed benchmark) will rise.

Mortgages currently have the lowest interest rates. This is especially true if you are planning to take out a higher interest rate loan. Abandon the decision to borrow extra money, taking into account the liability that will come when interest rates rise next year.

Expenditure on foreign education
The rupee is likely to depreciate against the dollar in early trade on Friday. This will increase the cost of educating children abroad and traveling abroad. Therefore, consider now that the target amount for such expenditure will have to be increased. If you have no investment in international equities or funds, consider this seriously.

There will be a decline in foreign investment
The main reason for the increase in investment assets around the world is the high liquidity in the economy. Globally, a large number of investors are investing heavily in various assets by borrowing large sums of money at minimal cost. As these costs increase, investors will flee the markets en masse. It will lead to heavy fluctuations in the stock market.

The US Federal Reserve is targeting a quarterly rate hike by March next year. This will lead to a sharp decline in investment in emerging markets. It is therefore not surprising that foreign investors are currently withdrawing from the country’s market.

Debt funds will also be affected
As interest rates rise in the US and rates rise in the country, this will affect investment in long-term debt funds in the portfolio. Therefore, it is advisable to stay away from long-medium duration debt funds.

When interest rates rise, the US dollar will naturally strengthen. It will also push down the price of commodities like gold. The opposite may happen. When stocks fluctuate, investors flock to gold as a safe haven, leading to higher prices. Rupee depreciates against dollar in early trade


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