Real Estate Developers Mixed on RBI Rate Cut Decision

Violet Tucker
August 3, 2017

Mumbai: Home loans and other borrowings are set to get cheaper with the Reserve Bank of India's monetary policy committee (MPC) bringing down its policy rate by 25 basis points on Wednesday.

Most analysts at ratings agencies and foreign brokerages described the 25 bps rate cut by the RBI today as expected and ruled out any such action through the course of the year, saying the present low inflation print is not sustainable.

In its last policy meet, the MPC retained the repo rate at 6.25 per cent for the fourth straight time, citing risk to inflation.

"The 25 bps repo rate cut was on expected lines".

RBI Governor Urjit Patel said inflation trajectory now incorporates the first round impact of the implementation of the HRA awards of the 7th CPC by the central government.

"Given that the central bank is under a inflation targeting regime, it doesn't make sense to cut rates when you know that inflation will rise going ahead", Pan said. "This reinforces my view of room for incremental rate cuts to the tune of 50-75 bps (or 0.5-0.75 per cent) in coming months, which will reinforce RBI s parallel efforts to address the twin balance sheet problem and support growth recovery". Chandrajit Banerjee, Director General, CII said, "CII feels that a steeper cut in interest rate would have been more in consonance with market realities".

Retaining a cautious stance could cause tension with a government keen to lift the economic growth from January-March's 6.1 percent - fast by global standards but the lowest in over two years.

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"The experience with the marginal cost of funds based lending rates (MCLR) system introduced in April 2016 for improving monetary transmission has not been entirely satisfactory". The policy commentary was nuanced and balanced indicating upside risks to inflation have waned, whereas growth impulses in industry and services are weakening.

The repo rate, at which RBI lends to banks, is now down to 6 percent.

"So, the MPC chose to keep the policy stance neutral and to watch incoming data".

The MPC has the mandate of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of 2 per cent either way.

The Monetary Policy Committee stressed on the need to reinvigorate private investments, clear infra bottlenecks and provide big thrust to Pradhan Mantri Awas Yojana.

Government, RBI working to resolve large NPAs and recapitalise public sector banks, it said.

Good monsoon should keep food inflation under check.

Other reports by Guamnewswatch

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