RBI rate cut: Hope for more rate cuts, passing of benefits to consumers would benefit MF, Real Estate investors

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Updated: October 04, 2019 5:54 PM

The MPC has also decided to continue with an accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target.

Monetary Policy Committee, MPC, Reserve Bank of India, RBI, RBI rate cut, repo rate, MPC meeting, policy rates, RBI Policy Meets, reverse repo rate, marginal standing facility rate, MSF rate, mutual fund, real estate, MFThe reverse repo rate under the LAF stands reduced to 4.90 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 5.40 per cent.

On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) at its meeting on Friday decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 5.15 per cent from 5.40 per cent with immediate effect, leading to reductions in the reverse repo rate under the LAF to 4.90 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 5.40 per cent.

However, there may be further rate cuts in the subsequent RBI Policy Meets, as the MPC has also decided to continue with an accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target.

Regular rate cuts and hope for more cuts would ensure higher return for bond funds as long-term bonds issued as higher rate earlier traded at a higher rate in secondary markets when new bonds are issued at lower rate.

Mahendra Jajoo, Head-Fixed Income, Mirae Asset Global Investments feels the rate cut is in line with expectations and there would be improvement in bond yiels.

“MPC cut key policy rates by 25 bps in line with market expectations. RBI largely retained inflation projections for next year and revised downward growth projections. In view of that, further rates cuts may be expected in forthcoming policy reviews,” said Jajoo.

“While money market rates eased in response, bond yields inched up slightly as traders remain apprehensive of larger than currently scheduled borrowings by government. Market will now look forward to any possible OMO purchase operations to get comfort on absorption of additional supplies if any. We expect over all bond yields to remain range bound with easing bias,” he added.

On the other hand, Dheeraj Singh, Head of Investments & Fund Manager – Fixed Income, Taurus Asset Management Co Ltd feels that there was scope for higher rate cut to benefit mutual fund (MF) investors.

“Both, bond and equity markets may be slightly disappointed with the slightly lower than expected rate cut of 0.25 per cent. However, the dovish statement accompanying the policy resolution which keeps the door open for future rate reductions should act as some sort of a solace. Also, RBI placing importance on quick monetary policy transmission is also an important indication of the possible measures that the central bank may take in the near future,” said Singh.

Harsh Jain, Co-founder, and COO, Groww feels that the rate cut would benefit investors in long term.

“Government has reduced repo rate further by 25 bps which now stands at 5.15 per cent, this is a fifth straight cut in the repo rate by RBI and is a strong positive sign of the commitment of our government to boost economic growth, this move is a welcome opportunity for long term investors,” said Jain.

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However, Anuj Kacker, co-founder and coo, MoneyTap feels that the rate cut on the eve of festive session would enhance the demand if banks also make the loans cheaper.

“The RBI’s move will be welcomed by the consumers, especially during the festive season. This could give a serious boost to the retail sector. Subject to banks passing on the rate cut to consumers, they could avail lower interest rates on auto loans and personal loans,” said Kacher.

Rahul Grover, CEO, Sai Estate Consultants’ Chembur Private Limited (SECCPL) feels that the RBI repo rate cut would improve demands for propeties.

“With a continuous effort of reviving the growth of the industry, the recent announcement of the RBI rate cut will enliven the consumer sentiments towards investment and consumption. With the onset of the festive season, the RBI has ensured a much needed brief rest to the stressed real estate sector,” said Grover.

“The new rate cut and as per recent RBI mandate, new home loans will be directly impacted by the new repo rate resulting in a reduction in lending rate. This will help push the demand-side helping it improve the sales and overall economy,” he added.

Anuj Puri, Chairman – ANAROCK Property Consultants, however feels that housing demands would improve only if the rate cut benefit is passed to the stakeholders.

“Importantly, this rate cut comes close on the heels of the recent announcement of setting up a stress fund of Rs 20,000 crore to provide last-mile funding to projects stalled due to lack of capital. This fund needs to get into action soon and demonstrate meaningful results to improve the sentiments of industry stakeholders like FIs, PEs, developers – and most importantly, homebuyers. An announcement regarding the real-time deployment of the stress fund during the festive season can dovetail well with this rate cut and yield a positive consumer response,” said Puri.

“There’s still a dire need to do more for affordable-to-mid housing (units priced less than Rs 80 Lakh) as nearly 68 per cent of unsold inventory lies in this segment. This is where the ‘real’ end-user demand is and affordable housing definitely needs additional measures such as extending the moratorium period on home loans, subsidies, additional tax benefits, and a revision of the definition of affordable housing,” he added.

“On a macro level, the overall stress that Indian real estate is in cannot be remedied merely by reduced lending rates – the sector has been reeling under subdued demand for many years. Even if we ignore the euphoric pre-2010 era, new housing project launches in 2018 across top 7 cities were 64 per cent below the previous peak of 2014. Likewise, sales were down by 28 per cent,” Puri further said.

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