RBI supports growth stance with repo rate cut

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As per the latest data by the Government of India, the economic growth has slowed down to a 20-quarter low of 5.8 per cent during the last quarter of FY 2018-19.

Also, the consumption has remained weak during the past several months due to the ongoing liquidity crisis, in spite of controlled inflation under 4 per cent. These trends have propelled the RBI to reduce the repo rate for the third consecutive time to 5.75 per cent from 6.0 per cent.

Even on the global front, factors like trade tensions and expected global economic slowdown had a bearing on the decision. The change in policy stance to ‘accommodative’ is the much-needed measure to boost the economy.

The monetary policy decision to cut the policy rate is laudable. As the residential sector is already at inflexion point signalling a sustainable recovery, this decision will support the trend. This repo rate cut is likely to have a direct impact on the real estate sector, provided the banks, in turn, transmit the same by a corresponding reduction in lending rates.

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It has been observed that, despite 50 bps reduction in repo rates by the RBI in the previous two reviews, the mortgage interest rate has remained sticky. As a result, the required benefit of the rate cut has not reached the home buyers.

However, with regulations reinstating homebuyers’ confidence in the segment, markets witnessed recovery in sales in 2018. Further, in the January-March quarter of 2019, sales grew by 28 per cent as compared to the corresponding quarter in 2018. But commensurate transmission in interest rates will further boost residential sales momentum in 2019.

Stronger implementation and continuity of reforms under the second term of the current government will uplift homebuyers’ sentiment.

(Ramesh Nair is the CEO and Country Head, JLL India. The views expressed are personal)

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