As widely expected, the Reserve Bank of India (RBI) kept its key policy rates unchanged in its bi-monthly monetary policy review meeting today in view of the second COVID wave, while maintaining its accommodative stance for the seventh consecutive time.
Commenting on the same, industry experts said the unchanged repo rate regime works well for home loan borrowers as the floating retail loan rates, which are directly linked to external benchmark repo rates, have been at the lowest level in the last two decades.
“The continuation of this low interest rate regime supports the environment of affordability which has become the new hallmark of the housing market – during the pandemic, and even before,” said Anuj Puri, Chairman, ANAROCK Property Consultants.
Had it not been for the pandemic, the RBI could have taken a different stance for the benchmark rates on Friday. However, the spectre of inflation in the country looms too large, prompting the RBI to keep the repo rates unchanged at 4% and reverse repo rate at 3.35%.
“On the upside, the RBI did confirm that economic activity is reviving with the ebbing of COVID-19 in most states across the country. Also, the real GDP forecast for the FY 2021-22 remains at 9.5% in the wake of the vaccination drive that is in full swing in India. All this is positive for the residential market, which has strong correlations to the overall state of the economy,” added Puri.
Welcoming the RBI’s unchanged view on the ‘accommodative’ stance, Shishir Baijal, CMD, Knight Frank India, said, “Despite the inflationary pressures, the RBI maintaining status quo on key policy interest rates and continuing with growth supportive policy stance were the need of the hour. The extended period of historic-low interest rates would ensure the home loan rates to remain at the current benign levels and aid the revival of real estate sector. We have also seen many real estate developers refinancing their borrowings at lower interest cost and benefit from the lower interest rate regime, which is crucial at this juncture when business operations are facing the pandemic pressure.”
However, besides the monetary policy intervention, the time is ripe for the RBI and the government to undertake more valiant demand stimulant measures to help the economy to cross the FY20 GDP levels and ensure a broad-based revival. “The lower interest rate environment and demand stimulant measures from the government coupled with the on-going vaccinations are likely to encourage businesses and consumers to avail credit to expand their business or fulfill consumption requirements, thereby stimulating the economy,” said Baijal.
Some developers, however, feel that keeping in view the current scenario, a slight reduction in the key rates would have been widely celebrated as low interest rates have been a crucial factor in the revival of demand in the real estate sector.
Lincoln Bennet Rodrigues, Founder and Chairman, Bennet & Bernard Group, said, “We have already seen early signs of improvement in economic activity following the easing of some restrictions post the peaking of the second wave. To bolster this growth and revive the economy, a rate cut would have further improved the liquidity situation, which is vital for the real estate sector. While the consumer is enjoying low home loan rates currently, a cut would have further intensified demand. A continuation of low interest rates regime works well for borrowers. There is a need for stimulant policy measures that would enhance and ease credit provisions and increases buyer’s confidence. Any announcements in these forms would have been appreciated. As the nation recovers from the second wave of pandemic, there is a dire need to provide monetary policy support – on account of both easy availability and lower cost of funds – to households and businesses alike.”