Business Sector hails RBI Repo Rate Cut
Press Release
Wednesday, August 07, 2019 | 06:05 PM
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New Delhi  : The Reserve Bank of India in its second bi-monthly policy statement for 2019-20 announced to cut the key repo rate, at which it lends to banks, It was fourth rate cut by the central bank in a row. The short-term lending rate now stands at 5.40 per cent. Bankers , Finance sector, Realty and other sectors hailed this move, although they were hoping for 50 basis points cut.  

RBI Governor Shaktikanta Das Said, ‘The MPC felt standard 25 bps rate cut might have been and 50 bps rate cut a bit excessive’. 

RBI Governor Shaktikanta Das

Ms. Manju Yagnik, Vice Chairperson, Nahar Group Said, ‘This is the fourth consecutive rate cut by the RBI collectively slashing the rates by 110 basis points since February, 2019 which makes the current interest rates stand at 5.4%.The question that now arises is that will the accommodative stance & 35 point rate cut from the MPC help the Indian economy to regain its pace. It will indeed bring along hope for several industries and sectors including real estate, but the true speculation lies in the purchase power of the common man and if he/she is willing to invest money in the market. From an investment purview RBI has been the most aggressive in Asia in cutting interest rates and it is imperative that the benefits now reach the loan takers. If it does, the interest on home loans will be much more cheaper so this would be the apt time for homebuyers to take a loan for their dream home. The developers will also be able to attain loans at cheaper interest rates from lenders and enable them to finish stuck projects. This is likely to result in the commodities becoming cheaper, ultimately benefitting the homebuyers and accelerating the cycle of cash inflow and product outflow.’

 Ms. Anagha Deodhar, Economist - ICICI Securities said, ‘The MPC deviated from convention by cutting repo rate by 35bps. In the current situation, 25bps cut would have been inadequate while 50bps cut would have been too aggressive. Inflation and growth are likely to pick up in the second half of FY20 hence we believe there is room to cut rate only once more in this fiscal year. The committee cut growth forecast for FY20 by 10bps to 6.9% however we believe actual growth could be lower. Also, the MPC forecasts inflation to average ~3.3% in FY20 while we believe actual inflation outturns could be much higher at ~3.6-3.7%. Large banks have started cutting lending rates in response to reduced repo rate. Also, the RBI announced a slew of measures to aid the NBFC sector such as reduced risk weights for consumer credit, increasing banks' exposure to a single NBFC, permitting banks to on-lend through NBFCs etc. Greater transmission of rate cuts along with easier conditions in the NBFC sector are likely to have a position impact on the economy."

Mr. Anshuman Magazine, Chairman & CEO, India, South East Asia, Middle East & Africa, CBRE Said, “The Reserve Bank of India’s decision to cut the repo rate by 35 basis points is a welcome move. In a scenario where there is pressure on GDP growth, the move will spur investment and boost consumption activity in the economy. We believe that this announcement might result in a further reduction in home loan rates and will provide an impetus to the government’s initiative of affordable housing. The rate cut coupled with several existing incentives for borrowers will impact home loan rates positively and enhance consumer sentiment”.

Mr. Rajiv Sabharwal, MD and CEO, Tata Capital Said, “RBI reduced the repo rate by 35 bps and continues to maintain an accommodative stance. The markets will draw comfort from the fact that the regulator has emphasised on boosting growth and private investment remains high priority at this juncture. Supplemented by durable liquidity and an effective transmission of rates, the bond market will continue to sustain momentum. Priority sectors are the engines for the growth of the economy and NBFCs play an important role in delivering credit to these sectors. Thus permitting the banks to on-lend through NBFCs for Agriculture and MSMEs will help further channelize the credit flow effectively to these sectors.”

Mr. Umesh Revankar, MD and CEO - Shriram Transport Finance Ltd Said, “We welcome the RBI`s decision of 35bps cut. This rate cut is in line with our expectations in current economic conditions. With a total of 110 bps cut in 2019, we expect the banks to be in a comfortable position to do the transmission of the same. Permitting Banks to on lend through NBFC for  priority sector lending would make this transmission faster and more efficient. This also would significantly improve the MSME functioning in the current  environment and ultimately contribute to faster growth of economy.  As the monsoon predication is very positive, the overall demand will pick up during  Ganesh Chaturthi  and would keep the momentum positive through the year”

Mr. Unmesh Kulkari, Managing Director, Senior Advisor and Head - Markets & Advisory Solutions, Julius Baer India, said, “The RBI MPC cut policy rates in today’s policy review by an unconventional quantum of 35 bps, instead of the usual 25 bps. The rate cut reflects the RBI’s “highest” priority to revival of growth, boosting demand and private investment and closing the negative output gap. RBI has lowered its growth forecast significantly for 1HFY19, from 6.4-6.7% to 5.8%-6.6%, and marginally for the full year, from 7.0%-6.9%, with risks tilted to the downside. The MPC seems comfortable with the current inflation trajectory. At the same time, the MPC felt that a 50 bps cut in today’s policy would have been a bit excessive, especially as they had already done earlier three rate cuts in quick succession. The reiteration of accommodative stance by the MPC, along with the unanimous decision of its members in favor of a rate cut, leaves room on the table for another rate cut. The quantum and timing, however, of the next cut could be a question mark, given that RBI would possibly like to see more transmission of the 105 bps cumulative rate cuts into the banking system. At this stage, a 15 bps follow-up rate cut looks more probable than 25 bps in the remaining calendar year. The MPC’s announcement with respect to increase in bank exposure limits to a single NBFC from 15% to 20% of the bank’s Tier I capital, coupled with allowing bank lending to NBFCs for onward lending to priority sectors, is a positive step towards improving the credit flow in the economy, and particularly to NBFCs’’. 

Mr. Sanjay Dutt, MD & CEO, Tata Realty & Infrastructure Limited,  said, “The RBI’s decision to further cut repo rate by 35 basis points to 5.4% is a well-timed move as the country prepares for the festive season. The move is expected to improve buying sentiments in the market and provide the much needed impetus to the real estate sector that has been battling with tight liquidity condition. With four straight rate cuts, the benchmark rate is now the lowest since April 2010. It highlights on government’s efforts to improve liquidity and consumption pattern in the Indian economy, and boost growth from a five-year low. We are hopeful that the festive season would bring in more cheers with strong demand revival and improved investor interests.”

Mr. Parth Mehta, Managing Director, Paradigm Realty Said, “The 35 BPS rate cut is a great news tad more than our expectation of 25bps. This shall help faster transmission of rate cuts as already banks are standing with excess liquidity and now will be compelled to Deploy in good assets for which rate cuts benefits need to be passed on in the form of cheaper consumption finance loans linked to auto , home loans , personal loans etc. The credit growth is very important for inducing investment cycles to return back. With surplus liquidity in hand and repo rate standing almost 110 bps lower at 5.4% from start of 2019, the transmission of aggressive rate cuts by banks should follow and spur credit growth propelling consumer spending hence bringing back healthier economic growth”

Anuj Puri, Chairman of  ANAROCK Property Consultants, Said, “The hard facts of declining consumption and a deepening economic slowdown in India are inescapable, and real estate has been severely impacted by them. To this gloomy backdrop, the RBI’s repo rate cut of 35 bps to 5.4% announced in the latest monetary policy is obviously welcome. This rate cut, the fourth consecutive cut since February 2019, is meant to boost consumer sentiments once commercial banks transmit the benefits to actual consumers. For real estate, a rate cut of 35 bps is however insufficient to significantly improve buyer sentiment in the mid-income segment, which still has a staggering unsold inventory of 2.17 lakh units in the top seven cities. On the other hand, demand for affordable housing, which accounted for 2.40 lakh unsold units in these cities, may see improvement as this highly budget-sensitive segment already has the benefit of other incentives. Even minor downward revisions in interest rates can and do make a difference in affordable housing. If banks transmit this reduction in the prime lending rate to consumers, budget housing demand may improve. Likewise, housing demand in tier 2 and tier 3 cities, where property prices are less prohibitive, may see an uptick. However, this rate cut, even if adequately transmitted by banks, will not do much for mid-income housing in tier 1 cities where the main concern is un affordable property prices and not interest rates.Previous rate cuts in 2019 did prompt some banks to lower their home loan interest rates by a certain margin. The RBI is putting in concerted efforts to establish a mechanism for effective transfer of repo rate reductions to actual consumer lending rates. This fact by itself bodes well for future acceleration of consumer spending as it means that future repo rate cuts will be transmitted more proactively.
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