In an effort to boost the sagging economy the Government has decided to make banks reduce the interest on the housing loans. It is perceived that a heightened activity in the housing area would boost the economy by increase in spending.
The prices of steel and cement are on an all time low and so the houses would cost less. The interest rate on a house costing about 20 lakh is about 9% and if the house costs about 5 lakh it would be 8.5%.
But the flip side of this story is that consumers are not willing to take a long term risk and spend money in an economy where long term incomes are not assured as businesses are low and jobs are being cut. The banks on the other hand complain of having no cash reserves to lend to consumers. In effect one is doubtful if these measures would really have the expected impact.