RBI maintains status quo; keeps repo rate unchanged
The Reserve Bank kept the key policy rate unchanged at 6 per cent for the fourth consecutive time since August last year in view of uncertainties around inflation.
“The MPC decided to keep the policy repo rate on hold and continue with the neutral stance. The MPC reiterates its commitment to achieving the medium term target for headline inflation of 4 per cent on a durable basis,” said the first bi-monthly monetary policy for 2018-19.
The repo rate, at which the central bank lends short-term money to other banks, will continue to stay at 6 per cent. The reverse repo, rate at which it borrows from banks and absorbs excess liquidity, will remain at 5.75 per cent.
The headline inflation after surging to a concerning 5.2 per cent in December last year, cooled off to 5.07 per cent in January and further to 4.4 per cent in February.
The Monetary Policy Committee (MPC), headed by RBI Governor Urjit Patel, had last reduced the benchmark lending rate by 0.25 percentage points to 6 per cent last August, bringing it to a 6-year low.
Ramesh Nair, CEO and Country Head, JLL India commented, “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.”
“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’, said Dr. Niranjan Hiranandani, President NAREDCO.
Shishir Baijal, Chairman & Managing Director, Knight Frank India quoted, “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.”