RBI Postpone Interest Rate Cut

RBI postpone interest rate cut
RBI postpone interest rate cut

The fifth bi-monthly Reserve Bank of India (RBI) Policy announcement and the first one post demonetisation have left the real estate industry surprised and disappointed. The apex body have decided not to cut interest rate while keeping the repo rate unchanged at 6.25 percent and maintaining the status quo in its fifth bi-monthly policy meet.

Here is how industry leaders and experts reacted on RBI’s policy move.

Ashwin Sheth, CMD, Sheth Corp Ltd said, “RBI maintaining status quo, a surprising move especially post demonetisation.” He further added that “RBI had already taken few steps including 100 percent incremental increase in Cash Reserve Ratio to withdraw excess liquidity from banks. Also, the banks were flushed with funds following demonetization of old high-value notes from November 9. A rate cut at this stage would have helped in lowering the home loan interest rates making the home buying a reality for most buyers who have been eagerly waiting for the rates to cut down.”

Navin Makhija, Managing Director, The Wadhwa Group also stated the same point. “Maintaining status quo on the repo rate in RBI’s bi-monthly monetary policy is an unexpected move made by the new RBI Governor, Dr. Urjit Patel. We were anticipating a rate cut of at least 25 bases points with changes like demonetisation being introduced by the government. Nevertheless, the banks should now reduce the interest rates that will ensure that the demand for housing does not weaken. The accommodative approach will assure that the steps taken up by the government are in the right direction and propel the growth of the real estate sector.”

It seems that RBI wants to see the demonetisation impact more clearly and further expecting the banks to pass on the benefits of rate cuts to the consumers first. As this will lower the EMIs on home loans and will encourage buyers to buy homes through home loans. However, the existing home loan borrowers should not expect any decrease in their home loan EMIs.

Although it is expected that there could be a rate cut in February 2017 during the next RBI policy meet.

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