By: Harjith Bubber, CMD, CCI Projects
Track2Realty Exclusive: The RBI needs to put its act together before its next monetary policy review on July 30. In the wake of sluggish pace of economy, the Reserve Bank’s status quo on key policy rates in its last monetary policy sent a wave of disappointment in the industry.
The RBI was able to consistently slash the repo rate and CRR by 0.25% in each of its last three policy reviews. Given the current economic scenario marked by a dampened investor sentiment, it was expected that the country’s apex bank would continue the momentum and extend a proactive stand by bringing a reduction in the policy rates. This would have propelled the much-awaited reduction in the interest rates and infused some cheer in the market.
However, the RBI kept the key rates unchanged citing elevated food inflation, rupee depreciation and uncertainty over foreign fund inflows. The repo rate at which the RBI lends to the system has been retained at 7.25 per cent, while the cash reserve ratio will continue to be 4 per cent. Also, so far, only Bank of India has agreed to reduce its base rate by 25 bps from July.
At a time, when the economy is going through a rough phase, the industry was expecting some crucial steps from the RBI to salvage the situation. The investment sentiment in the country is going through a poor phase. A rate cut would have acted as strong boost given its impact on the inflationary pressures and the interest rates. It would have further infused liquidity in the system and helped to rev up the growth momentum in the economy.
Particularly for the real estate sector, the stubborn stand taken by the RBI will have a cascading effect. The tight liquidity in the market will lead to short supply and resultant price rise. The RBI needs to work in tandem with all stakeholders while reviewing the monetary policy.
The realty industry is facing a huge funding issue which could be eased if the RBI revises the key policy rates. For real estate to be affordable, it is important that developers are able to source the funds cheaper so that the product is delivered on time. Several projects are stuck in limbo for want of funds.
Additionally, developers are also expected to keep prices rational. But this is not possible without government intervention. A reduction in policy rates could work as a harbinger to address this situation. Financial inclusion is a key component to inclusive growth.
It is equally important that the buyer gets to avail home loans at a cheaper rate of interest so that he can go out and buy a home. The fluctuation in home loan rates has acted as a deterrent to the buyer’s home buying decision.
As a result, several buyers have deferred their purchase causing a lull in the market. A reduction in policy rates will translate into lowering of interest rates, which could help trigger the market activity. It will also resume confidence on the side of the consumer who is waiting to see some action coming from the government side.
So while the rupee continues to depreciate sharply against the dollar, there is a mighty task ahead for the RBI as it approaches its next policy review on July 30.
