RBI Maintains Status Quo; Repo Rate Unchanged

Highlights

• Repo rate unchanged since August at 6%
• Central bank continues to focus on controlling inflation
• Impact on home loans is minimal

In its fifth bi-monthly policy review for the current fiscal, the Reserve Bank of India (RBI) kept the repo rate unchanged at 6%.

The reverse repo rate was also unchanged at 5.75%. The move by the Central Bank, essentially, was in line with market expectations.

With this, the repo rate still stands at a seven-year low. The committee had last cut the key lending rate by 25 basis points in August this year.

Commenting on the decision, Dr Niranjan Hiranandani, President, NAREDCO, said, “Going by the market sentiments, it seemed that the RBI was not likely to lower the key interest rate, and would stay focused on controlling inflation. One would ideally, have looked for a rate cut, but the scenario is one where the RBI’s monetary policy committee maintained the existing repo rate in the monetary policy review.”

Reiterating the same, Deepak Kapoor, President CREDAI-Western U.P. & Director, Gulshan Homz, said, “Before questioning the judgement of the apex bank on holding the rates, one must not forget that it has to keep sufficient cushion for the economy with the massive changes that will come about in the next few months in form of REITs, InvITs, and SPVs.”

The neutral stance of the monetary policy agrees with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, according to a media release from the RBI.

Taking into account global and national economic indicators, the RBI retained its October outlook for real Gross Value Added (GVA) growth for 2017-18 at 6.7%. “It needs to be noted that RBI has raised its inflation forecast to 4.3 – 4.7% in Q3 and Q4 of the current fiscal,” Niranjan added.

A few experts are also of the opinion that the banks have enough scope for slashing interest rates since the previous repo rate reductions in August are yet to offer the complete results. Vikas Bhasin, MD, Saya Group, said, “Even though the RBI has not cut the repo rate today, still there is a lot of room for the banks to further reduce the lending rates. A lending rate of 6-7% is ideal for our realty sector as we are moving towards strong policy changes at the national level.”

Sharing positive aspect of the decision, Gaurav Gupta, General Secretary CREDAI-Ghaziabad and Director, SG Estates, said, “The market has been gaining stability post RERA and GST with further cushion expected in the form of lending rates. Even though the RBI has not provided any rate cut this time, fresh home loan borrowers should not worry much as they may still witness lowered EMIs because, amidst intensifying competition among the lenders,  banks might be forced to start cutting down the interest rates themselves.”

Further reading:

Find out how the Indian real estate scene fared earlier this year in our report here.

Interested in reducing your home loan interest rate with or without the help of the RBI? Read our tips here.