In the first monetary policy meeting of the new fiscal year, the Reserve Bank of India has kept the Repo Rate unchanged at 6%.
Chanda Kochhar, MD & CEO – ICICI Bank
The significant positive in the monetary policy was the downward revision of inflation projections. The MPC also recognized that the structural reforms undertaken by the Government and the pickup in credit growth are leading to a broad based cyclical improvement in the economy. The MPC has prudently voiced concerns about the possible interplay of domestic and global risk factors that could play out over the medium term. The announcement of regulatory measures like the mandatory loan component in working capital financing is a step in the right direction. Allowing non-residents into swap markets and introduction of Rupee swaptions would deepen the domestic derivative market, while also aiding product development to enable better risk management by domestic entities.
Shishir Baijal, Chairman & Managing Director, Knight Frank India:
The Reserve Bank of India’s Monetary Policy Committee has decided to keep the repo rate unchanged amid uncertainty and volatility in global and domestic economies due to upward pressure in crude prices and inflation expectation, surge in bond yields and firming up of interest rates globally. In the current interest rate cycle, we have touched the lowest level and it will come as no surprise if the cycle turns.
Against this background, the impetus for stimulating housing demand does not lie on interest rate alone but on other reforms and steps taken by various stakeholders. Measures such as implementation of RERA in true letter and spirit, palatable payment plans for home buyers and relatively cheaper house prices are some of the critical determinants to revive the real estate sector. Until such time the benefits of these measures percolate across markets, the sector will continue to reel under pressure.
Dr. Niranjan Hiranandani, CMD- Hiranandani Communities and President – NAREDCO
The Reserve Bank of India’s (RBI’s) six-member monetary policy committee (MPC), headed by Governor Urjit Patel, remained firm on its neutral stance, which has been changed from the earlier stance of ‘accommodative’. The decision of maintaining ‘status quo’ on rates is consistent with the neutral stance of monetary policy, given the objective of achieving medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of plus/ minus 2 per cent, while supporting growth. The decision of the MPC was on expected lines, no surprise as RBI maintains ‘status quo’.
Ramesh Nair, CEO and Country Head – JLL India
Keeping the policy rates unchanged with REPO rates kept at 6% and reverse REPO rate 5.75% was expected given the unwavering market conditions in the last couple of months. The inflation index has remained stable at 4.4% and below RBI’s last outlook which is one of the key factors to keep lending rates unchanged. The RBI is also taking time to evaluate the market impact of developments like increased global crude prices, a hike in US Fed Rates etc. that could have impact on the Indian market in the coming months. Also ambitious government projects like healthcare insurance and hike in MSP for agricultural produce will need higher government reserves. A critical decision factor would be the outlook for monsoons and the monsoons itself that in the next 3- 4 months, will bring out the true economic picture for India for this financial year.
For the real estate sector, which has aligned to the government’s ambitions, was looking for some encouragement that would move the needle towards accelerated growth. The apex bank could have directed the lenders to keep the MCLR below 10% or put a cap on the same for home loans. Currently it is observed the MCLRs are higher by 10% – 12% in most leading retail lending banks. This could have brought down the effective lending rate for home loans. Already by linking MCLR to lending rate changing the earlier base rate has made the cost of borrowing home loans higher in the short term.
Residential sales across key markets of India in 2016 – 17 where only marginally higher by approximately 5% than new launches in the same period. A rate REPO rate revision leading to lower home loan rates could have given sentimental boost to end user buyers.
Anuj Puri, Chairman – ANAROCK Property Consultants
The Reserve Bank of India’s stance of keeping the repo rate unchanged at is exactly along the lines of our expectations. Considering that the inflation has inched up and crude oil prices are rising in the international market, maintaining the lending rates unchanged is justified. Nevertheless, it can expected that interest rates may soon start inching upwards. The real estate sector should onbiously look at the long-term economic prospects and implications on which the monetary policy decisions are based, as these will dictate the growth trajectory for the sector. However, a rate cut would have certainly brought cheer to the real estate market, which has recently seen the green shoots of recovery emerging after reeling under the impact of demonetization and structural realignment due to the Real Estate (Regulation and Development) Act as well as GST.
Rana Kapoor, MD & CEO – YES Bank
Despite sharp correction in food prices in the last two months, RBI’s status quo in the annual policy review was anticipated.
Ongoing normalization of interest rates in US, higher global crude oil prices, and the looming threat of escalation in global trade war warranted a cautious approach. The neutral stance is also justified by government’s proposed recalibration of Minimum Support Prices to 1.5x the cost of production for the upcoming kharif season.
I believe the growth baton is now firmly in Government’s hands as it is actively facilitating the revival of private investments. Additionally, with improvement in momentum of the asset resolution process, growth appetite should get ploughed back.”
Abheek Barua, Chief Economist & Executive Vice President – HDFC Bank
This was an unexpectedly dovish policy with the RBI highlighting inflation risks (oil, procurement prices, HRA for government employees) but at the same time revising their forecasts downward. If this is a permanent shift in the paradigm of inflation management from a singular focus on bringing long-term inflation down to 4% to an approach that is more supportive of growth, then the RBI might go for a long pause. Bond yields that have rallied are likely to move down a little more. However, whether this is a transient bout of ‘dovishness’ or whether it will endure (especially if one of risks were to surface) remains the key question.
Garima Kapoor, Economist – Elara Capital
In line with our expectation, MPC maintained status quo in today’s monetary policy. The recent softening in retail inflation that had firmed up during early months of winter, supported RBI’s decision to maintain status-quo. The recent moderation also supported a downward revision to RBI’s forecasts for FY19 CPI inflation. However, we expect headline CPI inflation to overshoot RBI’s forecast. We expect retail inflation to remain in the range of 4.7%-5.6% in H1 FY19 (vs. RBI’s forecast of 4.7%-5.1%) and 3.7%-5.0% in H2 FY19 (vs. RBI’s forecast of 4.4%). We believe factors such as the expected trajectory of food prices (following new formula for MSP revision), trend in crude oil and other commodity prices and outlook for South West Monsoon will remain key in determining policy trajectory. We expect one rate hike of 25 bps towards second half of FY19.