In its third bi-monthly monetary policy review which will be announced on the 4th of August, the Reserve Bank of India (RBI) is as likely to announce another rate cut as it is likely to maintain status quo, said Niranjan Hiranandani, Managing Director, Hiranandani Communities.
The Reserve Bank Governor Raghuram Rajan had cut the repo lending rate by 25 basis points to 7.25 per cent during the review on 02 June 2015. This brought the cumulative rate cut to 0.75 per cent since January this year. “Any rate cut helps reduce the overall burden for home buyers and has the potential to boost residential real estate sales,” said Niranjan Hiranandani.
From the RBI Governor’s perspective, the signs are mixed, said Niranjan Hiranandani. “In June, retail inflation rose to an 8-month high of 5.4 per cent, while the overall Wholesale Price Index (WPI) based inflation was (-) 2.4 per cent. So, when considering the current macro-economic situation, the RBI Governor will have to consider the divergence between wholesale and retail price inflation rates,” he said.
There are three aspects which are likely to impact RBI Governor’s thought process when he takes a call on whether to further reduce the rates: the monsoon, global crude prices and perceived weakness in the rupee. “All three are likely to play out in different ways across the rest of 2015, clarity on these three is likely only after the calendar year ends – so, will he go ahead and announce a rate cut on 4th August? I think the jury’s out on this; in my opinion it is a 50 : 50 whether we will see another rate cut from the RBI,” he added.
If the RBI cuts rates, logically it should boost investments and growth. “I am hopeful of further rate cuts, and hope that the RBI will take the right call at the right time on this,” he concluded.