RBI Monetary Policy 2017

Knight Frank (India) Pvt

Mr. Shishir Baijal, Chairman & Managing Director, Knight Frank India:

“The decision of the Reserve Bank of India’s monetary policy committee to keep the repo rate unchanged has been on expected lines. The present macro-economic situation in terms of higher than expected inflation and unexpected spike in fuel prices the industry was not expecting a rate cut. Having said that the marked slowdown in the real estate sector that started with the demonetisation last year and perpetuated in the wake of some structural reforms such as the Real Estate (Regulation and Development) Act, 2016 and the Goods and Services Act (GST) is expected to prolong. However, a cut in the policy rate could have helped stimulate growth and demand.”

Hiranandani Group

Dr Niranjan Hiranandani- CMD- Hiranandani Communities and President –NAREDCO National.

RBI does not cut rates, given the worries about inflation”: Dr. Niranjan Hiranandani

The Monetary Policy Committee headed by RBI Governor Urjit Patel, following its two-day deliberations, on 04 October 2017, maintained status quo as regards Repo and Reverse Repo rates. The Repo rate continues to be at 6 per cent, Reverse Repo rate was also unchanged at 5.75 per cent. In August this year, RBI had cut Repo rate by 25 basis points, and industry as also the government were hoping for an ‘encore’ pr even a larger rate cut. Inflation is seen to be the reason behind RBI’s decision to maintain status quo.

“Two major stakeholders in the Indian economy, the industry and the government. are both hoping that an interest rate cut will happen and that it will spur growth, which has dipped to the 3-year low of 5.7 percent in the June quarter,” said Dr. Niranjan Hiranandani, CMD, Hiranandani Communities and President, NAREDCO (Nation).

“The Indian economy as also the real estate industry are working their way out from the slow-down that resulted from the tsunamis of Demonetization, RERA, and GST. The tsunamis have effectively, slowed down the ‘buy’ decision; almost all home seekers have been in a ‘wait and watch’ mode since past few months. In light of this, a rate cut would have brought about much required positivity for sentiment, which in turn, would have a positive impact on home buyers. Had the RBI announced a rate cut, it would not just have boosted positive sentiment, but would also have marked a turnaround from the negativity which had been perceived in the real estate sector – the timing would be perfect, given the obvious positives of the festive season,” said Dr. Niranjan Hiranandani.

Over the period of one year, Indian business and industry are expecting a 100 bps rate cut, and in light of this, a cut in the October review would have been apt. From the perspective of the real estate industry, any rate cut by the RBI boosts sentiment and has a positive effect on sales of residential real estate. “Hopefully, we might see a rate cut in the next review, in December,” added Dr Niranjan Hiranandani.

Mr. Motilal Oswal, Chairman & MD, MOFSL :

Rates Unchanged, liquidity remains inaccessible to those who need it.

RBI Governor left all rates unchanged. This must have come from the thought process that there is adequate liquidity in the system but this liquidity is not available to those who need it.

The statement says that while the real interest rates in the system are marginally positive, when it comes to offering loans in the system the Banking sector is not willing to compromise on the risk profile and keeping risk embedded rates at artificially higher levels. The system has liquidity but that liquidity is parked into instruments which are protecting the risk. This is not a good thing for the economy and it is starving the industry of capital.

Equity markets are riding a different story altogether, while industry is starved off liquidity, the households are flushed with excess liquidity and that is getting poured into equity markets. Markets are trading at rich valuations and may continue that way if this mindless household surplus continues to chase the performance in the mutual funds, which will not have a backing of fundamental earnings growth. Markets are not willing to give up the momentum and we think will try to cross over new high soon.