RBI Monetary Policy – Continued Cautiousness
Contrary to a wider perception that the policy rate will be cut by
at least 25 basis points in the latest monetary policy,
India’s Reserve Bank of India (RBI) kept the repo rate unchanged at 6.25%. However, growth
outlook for the current fiscal year 2016-17 has been lowered sharply from 7.6%
y/y projected earlier to 7.1% y/y at the moment.
For the real estate sector, which is currently reeling under
pressure from the recently-announced demonetization of high-value currency
notes, a rate cut could have definitely allayed fears of a near-term loss of
momentum.
That said, even before the RBI’s announcement of its policy
rates today, some banks have gone ahead and announced interest rate cuts on the
back of improved liquidity in the system. This gives a lot of emphasis on the
fact that the demand for mid-segment housing will continue to remain strong,
since the salaried class predominantly uses bank loans to finance their home
purchases.
Near-term disruptions in cash-sensitive sectors such as retail,
hotels and restaurants are going to transiently impact demand for commercial
space, although with fresh supply of cash these problems will cease to exist.
However, if house prices are affected because of weak sentiment, overall
consumption could witness an impact through the wealth effect, the possibility
of which is uncertain at the moment.
What could offer the real estate community some respite is if the
policy committee would continue to remain accommodative and act positively on
any opportunity available for rate cuts as soon as they arise going forward.
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