And the rates are unchanged! The Reserve Bank of India (RBI), at its monetary policy review meeting held today, kept the repo rate unchanged to 6.5%. RBI also lowered the inflation projection to 2.7-3.2% from 3.9-4.5% for the second half of 2018-19. The Monitory Policy Committee (MPC) suggested reasons like fall in food inflation, rupee appreciation and improved investment environment for this balanced but brave move. Considering the recent tussle between the government and RBI, experts expected some rise in the repo rate. The repo rate is the interest rate at which RBI lends money to the banks for the short term.
The experts also counted the data released last week which indicated a sharp downfall in the economic development in the second quarter of the current fiscal year; the GDP slipped to 7.1% from 8.2% posted in the previous quarter. As per Anuj Puri, Chairman, ANAROCK Property Consultants, the recent episode made the industry cautious about the rates. He said, “The recent stand-off between the government and the RBI owing to the NBFC crisis and the apex bank’s endeavor to maintain its autonomy and reserves had caused the industry to watch closely whether the repo rate will increase or remain unchanged. That said, today’s move by the RBI to keep the repo rate unchanged at 6.5% was more or less expected. This was not solely because inflation targets are still under control.
Prasoon Chauhan, CEO, HomeKraft, expressed relief and welcomed the move. He said, “This is a welcome news for the housing sector as status quo on rate changes will give the right boost to the sector which has started to do well as evident from solid numbers of new launches and absorption in the last few quarters. As 2018 ends on a strong note for the realty sector, we are witnessing a spurt of new inquiries for projects with attractive home loan interest rates which will now continue to 2019,” Homekraft is the subsidiary of ATS Infra and deals into budget homes.
Echoing similar views, Shishir Baijal, Chairman & Managing Director, Knight Frank India said, ‘’The decision on keeping the key policy rates unchanged is on expected lines and will be a relief for the real estate industry that has been worried over a possible rate hike adversely impacting the market. Since the last Monetary Policy Committee Meeting, there has been a big relief with the fall in crude prices and the strengthening of the Rupee, thus, reducing inflationary risk. We believe the easing inflation situation and the need to actively support growth are the primary consideration for the MPC to maintain a status quo on rates.’’
Dr. Niranjan Hirandani- National President -NAREDCO felt that this move by RBI is positive for real estate and economic growth amidst reduced inflation estimates. He said, “This is positive for real estate, given that there was no ‘rate hike’. With the intent to encourage banks to lend more, RBI has also announced that it will reduce the SLR by 25 basis points every calendar quarter until it reaches 18 percent, which is also another positive for real estate. I would term the RBI’s move as one aimed at supporting growth amidst a scenario where inflation seems to be coming under control.”
Tushad Dubash, Director, Duville Estates said, “The RBI has maintained a status quo by keeping the repo rate unchanged at 6.5% in the wake of inflation and liquidity. While the rupee has appreciated against the dollar since the last hike, other areas such as liquidity in the system, and subdued inflation on account of falling food prices need to be addressed. The housing sector will not be severely affected with this as banks had been increasing their interest rates for a few months now. However, a rate cut would have provided some relief to the first time homebuyer and complemented the festive season.”
However, on the contrary, Hiral Sheth, HOD – Marketing at Sheth Creators feels RBI should have cut the rates to meet market expectations. He said, “Many banks and housing finance companies have already increased their MCLR and lending rates in recent months, primarily owing to the rise in their cost of funds. Therefore, a rate cut at this stage would have helped in lowering the home loan interest rates making the home buying a reality for most buyers who have been eagerly waiting for the rates to cut down.”
Some of the recent market reports suggest that the real estate industry enjoyed a much better festive season this year and the joy is still continued. Had the RBI increased the repo rate, it would have adversely impacted the sector. Moreover, as the nation is going to cast its votes in the next few months, the government too, would not have liked any unwanted movement in the market sentiments. As Anuj Puri further said, “Politically, an upward revision would not have served the current Government well as the 2019 elections are around the corner. From the economic standpoint, a hike in repo rates would have had a direct impact on home loan rates. High housing loan interest rates are known deterrents to many buyers, especially in the affordable segment where higher interest rates can and do weaken sentiment.”
Affordable Housing is one the segments which are doing great for the government as it aims to fulfill its ambitious dream of Housing for All by 2022. Anuj Puri explained the market dilemma and said, “Any move to further discourage customers from availing of bank credit would ultimately exacerbate the liquidity crunch and adversely impact the economy. From that perspective, the unchanged repo rate will at least keep the demand for housing loans at status quo. The RBI obviously needs to maintain an adequate buffer for the economy – especially in light of the massive changes that are likely to come about in the next few months in form of REITs and SPVs. Also, the NBFC crisis currently shows no signs of relenting, and keeping the repo rates unchanged is definitely in tune with the current market signals.”
The Monetary Policy Committee is scheduled to meet next on February 7, 2019. Eventually, that would be RBI’s first monetary review post the interim budget for FY19-20.