The Monetary Policy Committee (MPC) review meeting has concluded, announcing no policy rate change (repo rate stays at 6.25 per cent, the reverse repo rate at 6 per cent, and marginal standing facility rate at 6.5 per cent). It maintained its neutral monetary policy stance, but significantly softened its tone on inflation. Five out of six members were in favour of the monetary policy decision.
The MPC’s fiscal 2018 forecasts on gross value added (GVA) growth and consumer price inflation (CPI) were both lowered. GVA growth was mildly reduced to 7.3 per cent (down 10 basis points) but the inflation forecast was brought sharply down to ~ 3.5 per cent (from 4.8 per cent average). The MPC reiterated its medium-term inflation target of 4 per cent.
CRISIL: Despite a sharp reduction in its inflation forecast, the MPC’s policy stance has been kept neutral citing inflation risks on which they seek more clarity. Yet, we believe, given the likely undershooting of inflation, the ‘neutral’ stance has a de facto softening bias. Our inflation forecast is lowered to 4 per cent (down from 5 per cent earlier) for fiscal 2018, given the downside from food inflation. We now assume increased chances of a 25 basis points (bps) repo rate cut, most likely in the August MPC review meeting.
Siddharth Purohit, Senior Equity Research Analyst-Banking, Angel Broking: The RBI has left the key rates unchanged in its second Bi-Monthly monetary policy. While the MPC has kept a neutral stance on the monetary policy, the under tone was less hawkish; the lowering of inflation projections indicates that there is still a room for rate cut in the coming policy meetings. While the REPO rate was kept unchanged, on a positive side the RBI has cut the SLR requirement by 50 bps which should allow more liquidity at the end of banks. In the first Bi-Monthly monetary policy in April 2017, the RBI had indicated that inflation could remain at 4.5 per cent in 1HFY18 and gradually rise to 5 per cent in 2HFY18. However, the CPI inflation for April 2017 saw a sharp drop to 2.99 per cent vs 3.89 per cent in March 2017; this seems to have resulted in the RBI projecting a lower inflation going ahead. On the growth front, the RBI has revised its GVA projections by 10 bps to 7.3 per cent for FY18; however, it has maintained that the process of remonetisation will help in picking up the discretionary spending fuelling the growth. In another key announcement, the RBI has reduced the risk weightage on home loans above Rs 75 lakh to 50 per cent from earlier 75 per cent and in addition to this, the standard asset provisioning on home loans has been reduced to 25 bps from 40 bps. We had been positive on the housing finance space in India and the current measure of lower risk weightage and lower provisioning requirement should bring in higher growth for the sector in the quarters to come.
Shishir Baijal, Chairman & Managing Director, Knight Frank India: Considering the benign inflation numbers we expected the Reserve Bank of India (RBI) to adopt a growth-inducing dovish monetary policy unlike its hawkish stance witnessed in the previous review. With the initial concerns from geopolitical uncertainties such as the US polls, BREXIT and other crucial elections in Europe, fading away, the central bank’s Monetary Policy Committee’s long term view should be to accelerate growth. A growing economy would signal healthy consumption across all genres of the Indian real estate. With tamed inflation, uptick in industry sentiments and a good monsoon forecast the need of the hour is to embrace a monetary policy that propels growth.
Jaxay Shah, President, CREDAI: While RBI has kept the repo rate unchanged, we welcome their move of softening risk weight on home loans. This measure along with lowered inflation figures as per earlier projection will definitely augur well for the growth of the real-estate sector.
Deepak Kapoor, President, CREDAI Western UP: Real Estate sector was very much in need of a rate cut even if it was to be of 25-50 basis points. But, similar to last time, this policy review also did not brought any relief to the real estate sector as status quo was maintained. The realty sector is already under immense pressure and most of the projects in Noida and Greater Noida nearing completion and readying for possession soon. Therefore, in such a scenario, rate cut was the need of the hour to provide the much needed boost to the sector and to facilitating growth on the other hand.
Surendra Hiranandani, Chairman & Managing Director, House of Hiranandani: As widely expected, The Reserve Bank of India maintained status quo on interest rates for the forth time in a row, but lowered its inflation forecast for the current fiscal. We feel that the central bank decided to wait for the July 1rollout of the GST and assess the impact of the new indirect tax regime on inflation before tinkering with the policy rates. However, it should be noted that inflation has been under control for long and is likely to remain so on the back of good monsoon forecast. As per recent reports, consumer price inflation slowed down to 2.99 per cent in April and economic growth during the last fiscal was at its slowest pace in two yearscoupled with weakest loan demand since at least 1992. Hence, a reduction in borrowing cost could have provided the much needed impetus for growth in the near term.
Gaurav K Shah, Managing Director, Ravi Group of Companies: It was expected that the RBI will keep the rates unchanged at 6.5 per cent. A repo rate cut would have given the necessary boost to the industry and helped loan off-take to ease out liquidity in general. We look forward to favorable announcements by RBI post monsoon.Also,the cut in repo rate would have ensured housing loans being more accessible at attractive rates which could have renewed the interest of investors as well as home buyers. Banks are not expected to cut lending rates any further. Keeping in mind the mission of the government of housing for all by 2022, the move of the apex banks to cut the statutory liquidity ratio (SLR) by 50 bps reduce the risk weights on affordable housing applicable to lower value will also benefit the sector.
Prashant Tiwari, Chairman, Prateek Group: The announcement is according to the market dynamics and the rates will only reduced once the inflation settles down. Although government is taking corrective measures for economic growth and stability, there is a need to adopt a balanced approach considering the growth of key sectors like real estate. Homebuyers have been waiting for reduction and they will swarm the real estate market thereby helping the sector regain the glorious days.
Saurabh Jindal, Joint Managing Director, SVP Group: We believe that the RBI has kept the rates unchanged looking at the inflation factor and it is unlikely that rates will be changed before the effects of GST comes into effect or the better effects of monsoon are visible on economy. However, in real estate we are hopeful that lending rates may still come down looking at the government's focus on housing for all. Hoping for the best, we can say that it has been long due and will help in reviving the market sentiments.