Monetary Policy: RBI move positive for home loan borrowers, say industry experts

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Updated: June 04, 2021 12:15 PM

The continuation of the low interest rate regime works very well for home loan borrowers as the environment of high affordability is likely to continue for some more time.

Some industry experts said the RBI move was on expected lines, but they urged the banking regulator to announce monetary support to the NHB to revive growth in the realty sector.

As widely expected, the RBI Monetary Policy Committee kept the repo rate unchanged on Friday in view of the second COVID wave, while maintaining its accommodative stance for the sixth consecutive time.

Industry experts said had it not been for the pandemic, the RBI would have definitely taken a different stance for the benchmark rates today. Considering the rate at which inflation is rising presently in the country, the RBI would have sought to increase the key rates.

“However, since the economy is still under pressure due to the pandemic and inflation is rising due to supply-side issues coupled with overall consumption sluggishness, it has maintained the status quo on benchmark rates. This is the sixth time in a row that the RBI has kept the benchmark rates unchanged, in clear response to the exigencies of the COVID-19 pandemic uncertainties,” said Anuj Puri, Chairman, ANAROCK Property Consultants.

The move, however, is certainly positive 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 of the last two decades. “The continuation of this low interest rate regime works very well for all borrowers as the environment of high affordability is likely to continue for some more time,” added Puri.

However, some developers — who were looking for a cut in the repo rate — said a rate cut would have been beneficial for the consumers and would have given a boost to the current demand uptick that has been seen recently.

“Residential demand is reviving in the pandemic context and this needs to be fostered. However, the prevailing home loan rates which are a record low are already enticing for homebuyers. For any investor, it’s a time of great opportunity and for the end-customer, it’s a good time to buy. Going forward, we would also like to see reduction in stamp duty & registration charges to push demand further in the real estate sector that forms the backbone of several other sectors,” said Lincoln Bennet Rodrigues, Founder and Chairman, Bennet & Bernard Group.

Some industry experts said the RBI move was on expected lines, but they urged the banking regulator to announce monetary support to the NHB to revive growth in the realty sector, while the governing agencies should look into the rising prices of key construction materials.

Dhruv Agarwala, Group CEO, Housing.com, Makaan.com & PropTiger.com, said, “The RBI move to hold the repo rate at 4% in its monetary policy review is along expected lines. Considering there have been widespread economic ramifications of the various lockdowns announced by states to contain the second wave of the virus, this was the appropriate thing to do. However, we expect the banking regulator to announce monetary support to the NHB to revive growth in the real estate sector, which is the country’s second-largest employment generating sector in India.”

The developer community might find some support from the central bank’s decision to launch the Resolution Framework 2.0, under which the RBI will expand coverage of borrowers to Rs 50 crore, from the earlier Rs 25 crore. “In a move that augurs well for small businesses in the country that are reeling under the impact of the second wave, the RBI has extended the special liquidity facility of Rs 16,000 crore to SIDBI to support MSMEs,” he said.

Ankit Kansal, Founder & MD, 360 Realtors, said, “It was expected that the RBI will keep the repo rate unchanged and avoid temptations to further inject liquidity due to the downside risk of inflation. As steel, cement and crude oil prices are increasing, there is a mounting pressure of inflation and maintaining an accommodative stance is a benign choice. Coming to real estate, pent-up demand, structural transformations, and a healthy economic outlook ( ~ 8-9% for FY 22) will drive the market in a positive direction. However, governing agencies should look into rising prices of key construction materials such as cement and steel. Prices have hiked exorbitantly in recent months and if not contained, it will undermine and stall a lot of construction activities.”

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