RBI FAILS TO MEET MARKET EXPECTATIONS

     

With the Union Budget 2017-18 recently announced, markets were anticipating the RBI to come out with a decision to further ease the pressure off the market. With the banks currently holding high liquidity, a rate cut today could have assisted the borrowers in a big way. RBI’s neutral stance today, becomes its second in a row after the previous bi-monthly policy review in December last year. Markets were hopeful that the apex bank will reduce the key rate this time to allow the economy to breathe easy, but has failed to meet the expectations yet again. This being the first bi-monthly policy review for the current calendar year and post the budget; and the sixth and final for this financial year, a rate cut at this point of time would have pushed the banks to further drop their lending rates in near future. This further drop in the lending rates could have motivated the borrowers to gain access to funds at even more lowered rates, thereby signalling a growth in the demand and reduction in EMIs.

With today’s decision in the monetary policy review, the Repo rate remains unchanged at 6.25 percent, Reverse Repo rate under the LAF at 5.75 percent, Statutory Liquidity Ratio (SLR) changed to 20.5 percent from previous 20.75 percent, Cash Reserve Ratio (CRR) at 4 percent and Marginal Standing Facility (MSF) at 6.75 percent respectively. After a series of rate cuts for the general and affordable housing markets recently, this move could have only benefitted further. Realty experts aren’t welcoming this move as the economy was gaining momentum especially after demonetisation, and they believe that the growth graph will carry on to look a bit stagnant until rates are reduced further.

Industry Reacts:

Deepak Kapoor, President CREDAI-Western U.P. & Director, Gulshan Homz

Looking at the current market scenario, we were anticipating a repo rate cut by at least 25 basis points as the banks were already holding high liquidity and the benefit could have been passed onto the buyers. Lowered interest rates just ahead of the financial year closing could have allowed the buyers to plan their future investments, and realty sector would have benefitted the most especially after the recent lending rate deductions by the banks. RBI has played a wait and watch approach and might be waiting for the remonetisation drive to conclude properly and should cut the rates in April.

Kushagr Ansal, Director, Ansal Housing

We had pretty much entered a rate reduction cycle which was bringing back the demand for property investments in the market. After such a populous budget, a rate cut should have been there but the RBI has gone against the market forecasts. A rate reduction today could have allowed the realty buyers to plan property purchase as EMIs could have further eased. Banks are still to pass on the benefits of the previous repo rate cuts and a deduction today could have escalated the matter further.

Vikas Bhasin, MD, Saya Group

The government borrowings had reduced to INR 3.48 lakh crore from 4.25 lakh crore as presented in the Budget, which meant that a rate reduction was quite evident. Earlier this year, the government had provided subsidy on interest rates for affordable housing segment and banks had also reduced the general home loan interest rates by upto 50-60 basis points. A rate cut today could have allowed the potential buyers to invest in property as the EMIs would have reduced further in coming months. We hope that the next bi-monthly policy review observes a rate cut as it has been a neutral review for the second straight time.

Dhiraj Jain, Director, Mahagun Group

In case of a low interest rate environment surrounding the economy and cash available in abundance, the risk of inflation moving up exists. Hence, the RBI doesn’t reduce the rates until it has been fully convinced about the inflation control; as even the inflation has been on a rise for the fifth straight month in December. On the other hand though, since demonetisation, banks are keeping a strong credit and a rate cut today would have allowed them to pass on the benefits to the borrowers where reduced EMIs could have made the demand to take an upward movement on the demand graph for the property market.

Rajesh Goyal, Vice President CREDAI-Western U.P. & MD, RG Group

This is a surprise move by the RBI as we were expecting a 25-50 basis point reduction of the repo rate. The market has been gaining stability and post the union budget, further ease was looking on the cards. Even though the RBI has not provided any rate cut this time, fresh home loan borrowers should not worry much as they may still witness lowered EMIs because amidst intensifying competition among the lenders, the banks might be forced to start cutting down the interest rates themselves.