Two of the six-member Monetary Policy Committee wanted teduction on repo rate by 25 basis points.
MUMBAI, June 7 (The CONNECT) – By a majority 4-2 resolution, the Reserve Ban of India today decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.5 per cent.
On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) has also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.
These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth, RBI said.
Dr. Shashanka Bhide, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shaktikanta Das voted for status quo. While Dr.Ashima Goyal and Prof. Jayanth R. Varma voted to reduce the policy repo rate by 25
basis points.
The next meeting of the MPC is scheduled during August 6 to 8, 2024.
The Reserve Bank’s decision is a boon for the Indian real estate sector, said Anuj Puri, Chairman – ANAROCK Group.
This stability ensures that home loan interest rates remain low, making housing more affordable for potential buyers. With unchanged borrowing costs, both developers and homebuyers benefit from increased market confidence and predictability, he said.
The mid-range and premium property segments together account for more than 55% of the current supply. Together, they recorded approx. 76,555 units sold in Q1 2024 – nearly 60% of the total sales. The buyers of this segment are sensitive to volatile interest rates, and upward hikes would cause many of them to defer home purchases. This policy continuity supports sustained demand in these two segments, Ouri explained.
The affordable housing sector is, of course, most cost sensitive. While PMAY Urban has sanctioned 118.64 lakh homes against a demand of 112.24 lakh homes, affordable housing (homes priced under INR 40 lakhs) sales in Q1 2024 recorded 26,545 units – a mere 20% of the total sales. “However, as we have seen, unchanged home loan rates alone are insufficient to induce new vibrancy in the affordable segment. It is hoped that the government will soon introduce further incentives to support it,” he said,
He opined that with the mandate of a stable government now manifest in an unchanged monetary policy, the housing sector’s overall growth momentum will continue.
Here are some other industry comments:
Ashwin Chadha, CEO, India Sotheby’s International Realty: As expected, the MPC has decided to keep the repo rate unchanged at 6.5%. This decision aligns with the MPC’s calibrated measures to tackle persistent inflation. The RBI has successfully maintained the resilience of the Indian economy, contributing to sustained growth momentum even amidst a challenging global environment.
The good news is that CPI inflation continues to soften, and the GDP growth rate is projected to remain above 7% for all quarters of FY2024-25. Additionally, the monsoon is expected to be favorable, reducing potential risks to the economy.
Given these positive indicators, we anticipate optimistic sentiments to continue, also the upward trend in housing demand, particularly in the high-end and luxury segments, will persist for the foreseeable future.
Vimal Nadar, Senior Director & Head of Research, Colliers India: In the first MPC meeting after the recently concluded general elections, the RBI has maintained status quo. The repo rate remains at 6.5% and withdrawal of accommodation continues. This decision comes against the backdrop of a concerted effort to contain inflation close to 4% on a durable basis. Furthermore, an upward revision of FY 2025 GDP growth rate projection by 20 bps to 7.2% will fuel business optimism across sectors including real estate.
A stable financing environment will continue to benefit homebuyers and developers in both residential and commercial real estate. As central banks across the world ponder over rate cuts, the timing and pace of such reductions in India will remain a key monitorable and should provide further boost to residential activity in the ongoing fiscal year. Developers & institutional investors in the real estate sector will meanwhile continue to expect continuation of structural reforms and policy support from the incoming Central government.”
Raoul Kapoor, Co-CEO, Andromeda Sales and Distribution Pvt Ltd: We welcome the Reserve Bank of India’s decision to maintain the repo rate, as it brings stability to the economic scenario. The RBI commitment to controlling inflation remains crucial, to maintain growth and resilience.
The revised GDP growth projection, now expected to be between 7.2% and 7.3% for FY25, aligns well for the economy. A robust economy, coupled with stable interest rates, promises to elevate disposable incomes and bolster borrowers confidence.
It appears that the RBI MPC may continue this pause for the next couple of meetings in FY2025, with a focused view on liquidity management.
The Reserve Bank of India’s (RBI) policy announcement today has significant implications for the real estate sector, particularly in the context of the recent election results. With a focus on maintaining economic stability, the RBI’s decision to keep interest rates unchanged is expected to sustain the current momentum in the real estate market. Low borrowing costs will continue to make home loans affordable, thereby encouraging homebuyers and investors. Here is what real estate experts have to say on the announcement.
Prashant Sharma, President, NAREDCO Maharashtra: We welcome the Reserve Bank of India’s decision to maintain its current policy rates amidst the backdrop of volatile food prices, ongoing geopolitical tensions, and the Federal Reserve’s extended pause on interest rates. Looking ahead, it is crucial for the RBI to continue monitoring the evolving economic landscape, particularly in the aftermath of the Lok Sabha elections and the upcoming Union Budget. The policies and fiscal measures introduced next month will play a significant role in shaping the trajectory of our economy. A balanced and forward-looking approach will be essential to support sustained growth and stability in the real estate sector and the broader economy. We remain optimistic that the RBI, with its vigilant and adaptive stance, will continue to foster an environment conducive to economic resilience and development.”
Pritam Chivukula, Vice President, CREDAI-MCHI and Co-Founder & Director, Tridhaatu Realty: We would like to commend the Reserve Bank of India (RBI) for its prudent and cautious approach amidst the current economic landscape. Post the Lok Sabha elections and as we anticipate the Union Budget next month, it is crucial for the central bank to closely monitor the evolving economic policies. The direction set by these policies will play a significant role in determining future rate decisions.
We appreciate the RBI’s continued commitment to maintaining economic stability and look forward to seeing how these developments will shape the economic environment in the coming months. We are confident that the RBI’s careful and considered approach will support the broader economic goals of the country.
Rohan Khatau – Director, CCI Projects: RBI’s decision to maintain the policy rate is a prudent step, considering the current economic conditions and inflationary trends. We believe that the RBI’s balanced approach will foster a favorable environment for the real estate sector, enabling sustained growth and stability. We are optimistic that these measures will boost consumer confidence and investment, providing a robust foundation for future developments.”
Vedanshu Kedia – Director, Prescon Group: We welcome the Reserve Bank of India’s decision which reflects a proactive approach towards maintaining economic stability and fostering growth. We are particularly encouraged by the emphasis on maintaining liquidity and supporting financial institutions. These steps will contribute significantly to the sector’s recovery and growth, enabling us to continue delivering high-quality housing solutions to our customers. We remain optimistic about the future and look forward to the positive impact of these policies on the broader economy.
Samyak Jain, Director, Siddha Group: We commend the Reserve Bank of India’s decision and its role in managing inflation and ensuring economic liquidity. The measures introduced are timely and reflect a balanced approach to sustaining economic growth while maintaining financial stability. The support for real estate is particularly encouraging fostering growth and development in the sector. These steps will help in boosting market confidence and providing the necessary impetus for the real estate industry to thrive.
Himanshu Jain, VP – Sales, Marketing and CRM, Satellite Developers Private Limited (SDPL): The RBI’s decision to maintain the key policy rates is a significant step towards fostering growth. We welcome the measures introduced, as they are poised to create a conducive environment for the real estate sector. The focus on maintaining liquidity and ensuring favorable lending rates will undoubtedly spur housing demand, benefiting homebuyers and developers alike. We are optimistic that these policies will further enhance market confidence and drive sustained growth in the real estate industry.
Piyush Bothra, Co-Founder and CFO, Square Yards: Interest rates significantly influence consumer sentiments, particularly affecting the majority of buyers in the low-to-mid segment. The current market upcycle is driven by the premium segment, which is relatively less sensitive to minor interest rate changes. Hence, the central bank’s decision to maintain the status quo is a bit disappointing.
A reduction in the benchmark rates would have been ideal as it would have given further buoyancy to the real estate market, especially in the low-to-mid segment, and would have helped a lot of first-time home buyers realize their dream of owning a house.
Although the FY25 forecast for economic growth has been upwardly revised to 7.2% from 7%, and inflation is expected to remain within the target band of 2-6%, signalling towards a positive macroeconomic scenario that will buoy the homebuyer sentiments. Given the current outlook, we anticipate the demand momentum to remain strong in property markets across all major cities in India.
Shrinivas Rao, FRICS, CEO, Vestian: RBI kept the repo rate stable at 6.5% for the eighth consecutive time on the back of strong growth momentum. It is a welcome move as headline inflation is still above the RBI’s upper limit of 4% despite marginally easing to 4.83% in April 2024 over the previous month. Moreover, the inflation is anticipated to increase in May 2024 due to an increase in the prices of food items amid nationwide heat waves.
“This is probably the last time RBI will maintain status quo. The repo rate may start its descent from the upcoming MPC meeting as higher kharif production is expected amid an above-normal monsoon, easing the prices of food items. Furthermore, this reduction in repo rates may provide respite to the real estate sector and fuel the growth momentum further.
Shraddha Kedia-Agarwal, Director, Transcon Developers: We welcome the Reserve Bank of India’s decision to maintain the status quo on interest rates which reflects a cautious approach towards balancing economic growth and inflationary pressures. It offers stability in borrowing costs, supporting project planning and execution. Developers should remain agile and adapt to market shifts, focusing on innovation and meeting evolving consumer demands. Monitoring inflation trends and collaborating with policymakers will be crucial for navigating the current landscape and fostering sustainable growth in real estate.
Dhawal Dalal, President & CIO-Fixed Income, Edelweiss MF : The RBI MPC held policy rate steady for 5th time. However the voting changed to 4-2 with 2 MPC members voting for a rate cut. RBI upgraded FY25 GDP growth to 7.2% from 7%, which is positive. However, the RBI was concerned with sticky food inflation amid uptrend in global food prices and industrial commodity prices. Normal monsoon this year is critical for easing of food inflation. RBI also emphasized that there will not be any blind following of the Fed in terms of rate cut as they will give more weightage to local growth inflation dynamic. Overall, a prudent monetary policy in our view with potential rate cuts pushed in the 3rd quarter of FY25.
Sandeep Yadav, Head – Fixed Income, DSP Mutual Fund: The monetary policy did not throw any surprises, evidenced from the muted market reaction. However, there were three things that came out. Unlike previous times, the rate pause was not a unanimous decision with two members calling for a rate cut. While it doesn’t mean that we expect a rate cut in next policy, it shows that RBI is gradually moving towards a rate cut regime. RBI has also clearly disassociated their rate actions from the US FED. While RBI does look at domestic compulsions before taking rate decisions, it has to also look at the collateral damage of the currency – just like any other EM central bank. This is prudent, and we believe RBI has been following it – and will probably follow it when it cuts the rates. RBI mentioned that they prefer to keep overnight rate close to repo rate. This seems at odds with the data from past year. Many times, the overnight rate has diverged from Repo, and it probably was through RBI’s intent via VRR and VRRR. Thus, by today’s statement we believe that the future course of liquidity management will change, and RBI may keep overnight rate at Repo rate.
Kartik Jain, MD & CEO at Shriram AMC
We had expected RBI to keep interest rates unchanged. Domestic economy is on a growth path as FY24 GDP came in at 8.2%, better than estimates. Recovery is witnessed in all spheres – private consumption, investment activities and exports. Although India’s retail inflation eased to 4.83% in April 2024, an 11-month low, it is still higher than the targeted range. Normal monsoon should boost agricultural activities thereby cooling down inflation further. Moreover, the RBI will also monitor closely the policy decisions adopted by the new coalition government at the Centre and its impact on the domestic economy. RBI will resort to any rate reduction only when there is increasing comfort on the inflation outlook (targeted range of 4.5%) or if Fed cuts interest rates.
Siddarth Bhamre, Head Of Research at Asit C. Mehta Investment Interrmediates Ltd.:
Our biggest take away from this monetary policy is governor’s statement related to guiding principle of RBI which is ‘follow the Fed’. He mentioned that actions of RBI will be determined mainly by domestic growth-inflation outlook. So, with GDP growth revised upwards and inflation under control, is there a need to reduce interest rates even if FED reduces its rates in near future? Or should we not reduce interest rates and further increase our growth even if FED plays wait and watch game? In either case, our economy is on strong footing for sustainable economic growth.
