Highlights from RBI monetary policy

Accommodation Times New Services

Taking the real-estate industry by surprise, the announcement of RBI monetary policy remained largely uneventful. Following are certain highlights from the monetary declaration:

  • The Reserve Bank of India kept the repo rate unchanged at 6.25%. Reserve repo rate is set at 5.75%.
  • RBI kept short term lending rate unchanged.
  • Retail inflation target is set at 5 per cent for the fourth quarter of the fiscal. The medium-term target is set at 4 per cent between the band of +/- 2 per cent supporting growth.
  • RBI said that Demonetisation could help in reducing inflation by 10-15 basis point by December.
  • Cash reserve ratio is yet the same, set at 4%

Here’s what industry leader had to say about the RBI monetary policy:

Mr. Munish Doshi- Managing Director, ACME Group-  “While it has been noticed that although the deposit rates have gone down,  it is also expected that RBI takes further positive steps to cut down the policy rates, resulting in the Banking sector to put forth an affordable lending rates facilitating the growth of Real estate and infrastructure industry.

This positive transition is also vital for the growth of infrastructure and manufacturing sectors which are directly related to all our ancillaries to the Real Estate industry.

Even after demonetization, we have been experiencing a steady stream of enquiries for our projects, but people are still waiting and holding on to the decision for correction in interest rates, favourable macroeconomic situations and RERA & other regulations favouring the real estate purchase.

To look forward to achieving the Prime Ministers affordable housing dream, one of the important factors is the lending rate which contributes directly to the boost required in real estate sector.”

Mr. Surendra Hiranandani, Chairman & Managing Director, House of Hiranandani – “Considering the current economic situation, it is disappointing that the RBI has chosen to maintain status quo on policy rates. A 25 bps was widely factored in as it would have provided some cushion from the impact of demonetization. While it is anticipated that the Fed might increase rates from December, so reducing rates here could have an inflationary effect in the medium term, we have to remember that post demonetization, the downside risks to growth has increased significantly. This coupled with sluggish credit off take over the last few months has dampened economic activity across all the sectors. There is an urgent need to focus on growth and create more jobs that will strengthen the economy. A rate cut in the February policy seems inevitable now as the Central Bank would have got better clarity by then on the impact of demonetization.

The highlight of the policy was the withdrawal of incremental CRR that will have an immediate effect of 25 bps and provide further liquidity in the system. This will definitely help the banks to drop lending rates, thereby giving the economy, a much-needed breather. The amalgamation of lower interest rates alongside the various progressive measures taken by the government towards deregulation may revive demand in the real estate sector.”

Anuj Puri, Chairman & Country Head, JLL India- “Contrary to a wider perception that the policy rate will be cut by at least 25 basis points, India’s RBI has kept the repo rate unchanged at 6.25%. However, growth outlook for the current fiscal year 2016-17 has been lowered sharply from 7.6% y/y projected earlier to 7.1% y/y at the moment.

For the real estate sector, which is currently reeling under pressure from the recently announced demonetization of high-value currency notes, a rate cut could have definitely allayed fears of a near-term loss of momentum. That said, even before the RBI’s announcement of its policy rates today, some banks have gone ahead and announced interest rate cuts on the back of improved liquidity in the system. This gives a lot of emphasis on the fact that the demand for mid-segment housing will continue to remain strong, since the salaried class predominantly uses bank loans to finance their home purchases.

Near-term disruptions in cash-sensitive sectors such as retail, hotels and restaurants are going to transiently impact demand for commercial space, although with fresh supply of cash these problems will cease to exist. However, if house prices are affected because of weak sentiment, overall consumption could witness an impact through the wealth effect, the possibility of which is uncertain at the moment.

What could offer the real estate community some respite is if the policy committee would continue to remain accommodating and act positively on any opportunity available for rate cuts as soon as they arise going forward.”

Mr. Ashwin Sheth – CMD, Sheth Corp-The announcement of the newly appointed RBI Governor Mr. Urjit Patel and the first after demonetization of old currency, maintaining status quo and keeping the repo rates unchanged at 6.25% is a surprising move especially post demonetization

RBI had already taken few steps including 100% incremental increase in Cash Reserve Ratio to withdraw excess liquidity from banks. Also, the banks were flushed with funds following demonetization of old high value notes from November 9.

A rate cut at this stage would have helped in lowering the home loan interest rates making home buying a reality for most buyers who have been eagerly waiting for the rates to cut down.

The Government had taken the lead in trying to implement policies that will boost growth of the real estate sector. In the same vein, RBI too should have looked at the real estate sector with new optimism.”

Ankur Dhawan, Chief Business Officer, PropTiger.com- “RBI monetary policy committee’s move to not reduce repo rates has come as a dampener for real estate industry. Industry was hoping some rate cut as a signal to softening of interest rates. Though removal of CRR is proposed from 10th December onwards, its impact will take at least 15 – 30 days to be visible on the interest rates. We sincerely hope that banks will not take that long and proactively look at their MCLR to give benefits to borrowers which will help revive demand.”

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