The Reserve Bank Monetary Policy committee on Thursday revised rates by another 0.25% or 25 basis points. The latest repo rate revision (the rate at which the Central Bank lends to Banks) has thereby been fixed at 6%.
The MPC (monetary policy committee) decided to reduce policy repo rate by 25 basis points to 6 per cent from 6.25 per cent with immediate effect. The reverse repo rate has been adjusted to 5.75% and bank rate to 6.25%.
With any rate revisions, it is natural to expect loans majorly to housing and automotive sector to come down. This, owing to the thought that cheaper interest would make monthly installments cheaper too.
RBI's rate cut was announced fifteen minutes prior to noon, but by mid-noon on Thursday, most experts concurred that this was a gift for home-loan seekers. Corporates including associations were happy with the RBI's consideration, and the average home buyer is touted to be the biggest benefactor.
Anuj Puri, Chairman at Anarock Property, a property consultancy called the MPC move as a perfect start to the financial year. Puri said that the MPC move resulted in overall reduction of 50 basis points (0.50%) since February 2019. The repo rate now stands at 6% - returning to the same level as in April 2018.
"As it is, the sector already saw an uplift in homebuyer sentiment due to the multiple sops offered by both the Government and the RBI in just the first three months of 2019. These measures have contributed to a 12% increase in housing sales in Q1 2019 across the top 7 cities."
"The RBI has done its part by slashing the repo rates. The onus is now on the banks to concurrently reduce home loan rates further, thereby encouraging more fence-sitters to take purchase decisions and giving another boost to the real estate sector," added Puri.
The cheer among home-loan seekers, especially with property markets is understandable because interest rates at 6% have been the lowest set by RBI in as many as nine years. Yet, it may not be sufficiently cheerful, because banks are yet to pass on those benefits to customers.
The Governor himself during his post-announcement press conference said that banks had passed only 10 basis points or 0.1% as revision in rates post the MPC announcement in February. This, after the Governor personally met PSU bank chiefs in February.
Shishir Baijal, CMD at Knight Frank echoed similar sentiments on the rate-cuts not reaching home buyers.
Baijal said, "We are delighted with the second consecutive rate cut announced today which ushers an era of falling interest rate regime. We hope that the reduction in rate are passed on by the banks to the home buyers. Lower interest rates, along with the recent reduction in GST rates for under construction properties, should provide the fillip to end user demand. The real estate sector has been looking forward to such stimuli to boost sales velocity."
Naredco's official spokesperson spoke of election year policies, upcoming festival of Gudi Padwa (March 6th), and the economy with the rate cuts.
Rohit Poddar, Jt Secy for NAREDCO West and MD at Poddar Housing observed, "The actual inflation has stayed below than projected since February so there was a space for a further cut down in the rates. This is an election year and we can expect transient policies by the authorities due to the ambiguity over the possible policy changes by the newly elected government. This rate cut will affect the buying sentiments in a roundabout way as it is likely to make home loans cheaper. It will be a buoyant Gudipadwa for the sector."
Besides the repo rates, the RBI MPC's assessment also studied and evaluated key numbers related to the economy. This included inflation and GDP projections as well as assessment of key sectors such as manufacturing, services sector, agriculture, cement, infrastructure, etc.
Statements sent to Sify.com by developers have mostly been positive.
Ramji Subramaniam of Sowparnika Projects said, "The rate cut is a major fillip for the housing sector. A balanced and pro-industry approach by the RBI shall benefit potential homebuyers, as banks and other lending institutions eventually pass on the rate cut to the consumers. This would amplify the home sales by improving the home loan off-take."
R.G. Anil, Executive Director at Concorde Group said, "A supportive monetary policy aligns well with the steady upsurge in housing sales that we are witnessing. The on-ground impact of the RBI's move would amplify over the near to medium term, especially as the reforms have a trickle down effect, to create an enabling ecosystem."
Parth Mehta, MD at Paradigm Realty said that the MPC revision was on expected lines. He added that the latest policy would boost liquidity and investment cycles. Talking about construction finance, Mehta said the rate-cut "shall help borrowing rates related to construction finance getting lowered. We also believe that if the inflation continues to be stable then we can expect another rate cut in the next MPC meeting to revive consumer spending and restore economic growth."
Echoing similar sentiments, Amit B. Wadhwani, Co-founder at Sai Estate Consultants opined that markets were expecting a more accommodative stance with the 50 bps rate cut. This, although the second repo rate cut was an expected one.
"There have been many meaningful interventions by the government and regulator which has provided positive boost to the buying sentiment amongst the home buyers. The real estate residential sector better sentiment growth concurs with improved sentiment in overall business sentiment in the country. Besides OMO, the added focus on currency swap will provide the required easing in the transmitting benefits of the rate cut and also emanating into improving liquidity in the sector," he said.
Wadhwani remained optimistic on inflation and monsoon patterns, he concurred, "With short term food inflation expected to be benign, the possible seasonal related inflation reversal after monsoon will be a guidance of MPC to go for next rate cut in the month of August."