The RBI on Tuesday kept key policy rates on hold, expressing concerns over rising inflation in its second bimonthly monetary policy review of the financial year 2016-17.
NEW DELHI:Real estate developers and market participants seem disappointed with the RBI’s move to maintain status quo on key policy rates, but are hopeful for a rate cut later this year.
The Reserve Bank of India (RBI) on Tuesday kept key policy rates on hold, expressing concerns over rising inflation in its second bimonthly monetary policy review of the financial year 2016-17.
RBI kept the repo rate unchanged at 6.5%, the reverse repo rate at 6% and the cash reserve ratio has been retained at 4%.
Vineet Relia, Managing Director of SARE Homes, termed RBI governor Raghuram Rajan’s decision to keep the repo rate unchanged as “disappointing, though not unexpected.”
“Since demand in real estate and allied industries remains sluggish, a rate cut could have improved liquidity and created renewed interest in property purchase,” he said.
Shishir Baijal, Chairman and Managing Director, Knight Frank India, said, “The residential property market has not been doing well and there was expectation that RBI would reduce the policy rates that would have given a boost to the residential property market.”
The apex bank had announced a 25 basis point cut in repo rate in its April policy review. With retail inflation rising to 5.39% in April from 4.83% in March, expectations of a rate cut were extremely muted.
It is now focussed on lowering retail inflation to 5% by March 2017 on expectaton of rising retail inflation due to the rally in crude oil and other commodities prices and implementation of the 7th Pay Commission recommendations.
The stakeholders, however, kept their hopes alive for a rate cut later in the year.
“With the RBI stating its monetary policy stance is accommodative, one is hopeful a rate cut may be in the offing in the latter half of 2016,” said Relia of SARE Homes.
Neeraj Gulati, Managing Director, Assotech Realty said, “In the longer run we definitely foresee rate cuts that will boost the housing demand in India.”
The central bank has reduced its policy rate by 150 basis points until now since January 2015. But banks have cut their rates only about 70 basis points.
This is how other industry participants reacted to the RBI’s status quo:
Gaurav Mittal, Managing Director, CHD Developers Limited
On the backdrop of higher inflation, it was expected that RBI would maintain a status-quo on the key policy rates. RBI however has taken considerable steps to infuse liquidity in the market by reducing the lending rate by 150 basis points since 2015 and narrowing the policy rate corridor to 50 bps from 100 bps (in the first bi-monthly meeting of 2016); however; the banks need to pass on the benefits of the past policy rate cuts to home buyers by reducing the mortgage rates thereby making the home loans more affordable for the buyer.
Aman Agarwal, Director, KV Developers & Governing Council Member NAREDCO
Real estate sector was expecting a rate cut which could very well help in bridging the demand, supply gap and brings liquidity to the market. However, the decision to keep repo rate unchanged is indication of RBI’s determination to control over inflation and achieve sustainable growth of the economy. We hope the next RBI announcement will provide much needed boost and encouragement to home buyers, for which they are waiting long”.
Ashwin Sheth, CMD, Sheth Corp Ltd.
Playing it safe, RBI has been more cautious about the monsoon and its impact on inflation. Although, 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.
Rajesh Prajapati, MD, Prajapati Constructions
The Housing for All is an ambitious project by the Government and RBI needs to be proactive in making this dream come true by reducing the interest rates and making housing affordable.
Manju Yagnik, Vice Chairperson, Nahar Group
We welcome RBI Governor Dr. Raghuram Rajan’s announcement today on keeping the repo rate unchanged at 6.50 per cent. The last RBI bi-monthly announcement had reduced interest rate which were not passed on to customers by the banks. We hope that now banks pass on the benefits to the customers by lowering interest rates which will result in home buyers coming forth and buying property.
Kishore Bhatija, Managing Director – Real Estate Development, K Raheja Corp
The second bi-monthly policy announcement while maintains status quo on the rates, is accommodative in approach. We continue to be optimistic as the banks still have room to pass on the benefits of the previous rate cuts undertaken. We believe the steps taken by the governor are on the right path to address the economy where the inflation is likely to witness an upward bias.