RBI keeps repo rate unchanged: Impact on real estate

After slashing the repo rate by 135 basis points in the last five monetary policy reviews, the RBI has decided to keep the rates unchanged this time. The real estate industry stalwarts are divided in their opinion. While a few feel the move may prove deterrent for the growth of the realty sector, others opine that the call is imperative to ensure growth in the economy.

The Reserve Bank of India (RBI), in its sixth Monetary Policy review, led by Governor Shaktikant Das has kept the Repo rates unchanged at 5.15 percent this time. This has come at a time when the economic activity is on a downward spiral and the homebuyers, as well as the real estate industry, were expecting another rate cut. However, after a staggering fifth repo rate cut in a row in August 2019, RBI has maintained the status quo this time.

During this fiscal year, the RBI had cumulatively reduced the repo rate by 135 basis points (bps). A further rate cut was expected but rising inflation and reduced economic activity has kept RBI from changing the rate.

The expectations and reactions of real estate industry

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Looking at the dismal growth forecast, the real estate industry was expecting a further rate cut so as to ease the liquidity crunch and trigger a revival in the real estate market.

Even homebuyers were expecting a rate cut as the move has a direct impact on the Marginal Cost of Funds-based Lending Rate (MCLR) linked home loan Equated Monthly Installments (EMIs).

Expressing his displeasure over the move, Shishir Baijal, Chairman and Managing Director, Knight Frank India, says, “We expected that the slowing economic growth would take precedence in RBI’s policy decision. Hence, the apex bank’s decision to not slash the interest rate has come as a surprise and a bit of a disappointment to the industry.

Lower interest rate would have helped push up credit demand and investment in the economy, aiding overall economic growth. It would have provided the much-required reprieve to some ailing sectors such as real estate and auto. RBI has probably taken the cautious approach of wait-and-watch to see the effect of past rate cuts, and also to assess the inflation trajectory. With economic growth remaining subdued, there are still chances of a rate cut in the next meeting.”

Echoing similar sentiments of an expected rate cut, Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory, says, “The status-quo on RBI’s decision to not reduce the rates comes as a surprise and contrary to the industry’s expectations, which is skewed on the back of increasing inflation and depreciation of the value of rupee. From an economic standpoint, a cut in repo rates would have had a direct impact on home loan rates. The government had consistently looked at reducing the repo rates to boost demand.” 

“We further hope the lenders will pass on the benefits of the previous rate cuts which will help in the revival of the industry. We believe there is a need to reduce the borrowing cost for the customers to bring in the next leg of demand, which in turn will lead to the much-required growth in the economy. However, all eyes will be on the budget now, where a lot will be expected from the Government. The continuity of reforms under the second term of the current Government is needed to boost homebuyer sentiment,” adds Agarwal. 


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