RBI's decision to maintain status quo a cornerstone for enhancing affordability within realty sector, say experts

The Reserve Bank of India (RBI) on Thursday, February 8, maintained a status quo on the repo rate for the sixth time in a row, keeping a tight vigil on inflation. The rate increase cycle was paused in April last year after six consecutive rate hikes aggregating to 250 basis points since May 2022.

Announcing the bi-monthly monetary policy, RBI Governor Shaktikanta Das said on Thursday that the Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 6.5 per cent. 

The MPC has also decided to maintain the "withdrawal of accommodation" stance. Das said that MPC will remain watchful of food inflation so that the benefits gained are not frittered away.

Here is how industry experts view the RBI's monetary policy decision:

Mukesh Kochar, National Head of Wealth at AUM Capital

"The MPC outcome is on expected lines only. RBI will continue to focus on aligning inflation towards its target of 4 per cent which is expected to be attained by June-August. Inflation expectations for Q4 and Q1 have also been reduced. So the market may discount a rate cut possibility during the end of the second quarter or third quarter. Both the debt market and equity market may discount a rate cut possibility during the end of the second or third quarter." 

Kochar added the tight liquidity in the banking system may continue for some more time as the focus is on bringing inflation towards 4 per cent. Increased public debt globally has been cited as a concern which is very important.

Anuj Puri, Chairman, ANAROCK Group

"With the fundamentals of the Indian economy remaining strong despite all global headwinds and inflation well under control, the RBI once again decided to keep the repo rates unchanged at 6.5 per cent, thus extending the festive bonanza that it gave to homebuyers in its last two policy announcements. Thus, homebuyers retain the advantage of relatively affordable home loan interest rates. Given that housing prices have risen across the top seven cities in the last one year, this breather by the RBI is a distinct advantage to homebuyers."

Puri added that going forward, "we can expect the momentum in housing sales to continue, significantly aided by the unchanged repo rates, which will keep home loan interest rates attractive and also signal the ongoing robustness of India’s positive economic outlook."

Dharmendra Raichura VP Finance at Ashar Group

"As a real estate developer, we acknowledge the importance of a steady interest rate environment, as it influences borrowing costs and subsequently impacts the property market. The resilience in the repo rate provides a conducive atmosphere for sustainable development."

Chandresh Vithalani- Director Palladian Partners Advisory LLP

"The Reserve Bank of India's decision to maintain the repo rate at 6.5 per cent for the sixth consecutive time, alongside the moderation of inflation to 5.5 per cent from April to December 2023, serves as a cornerstone for reducing market volatility and enhancing affordability within the real estate sector. This move reflects a deep understanding of the need for economic stability, which is paramount for the growth and confidence of both developers and investors. By keeping the repo rate steady in the face of global uncertainties, the RBI has provided a predictable financial environment, allowing for more strategic planning and investment in real estate projects."

Vithalani added the decrease in inflation rates brings into focus the critical aspect of affordability, making home ownership more accessible to a larger segment of the population. With CPI inflation projected to stabilize at 5.4 per cent for FY24, and an even more optimistic projection of 4-5 per cent for the current quarter, we are looking at a robust real estate year ahead. This environment not only boosts buyer confidence but also stimulates sustainable growth in the real estate market, ensuring that investments made today will yield positive outcomes in the future.

Sonam Srivastava, Founder and Fund Manager at Wright Research

"For the financial markets, particularly the bond and equity markets, the unchanged interest rates signal continuity in borrowing costs, influencing investor sentiments. Equity markets may experience a boost as lower borrowing costs encourage corporate investments and consumer spending, potentially leading to higher stock valuations. However, bond markets might exhibit a subdued reaction as expectations for rate cuts are postponed."

Srivastava added in sectors sensitive to interest rate movements, such as real estate and automobiles, the unchanged policy could offer relief by maintaining affordability for borrowers. Additionally, sectors reliant on consumer spending, like retail and hospitality, may benefit from sustained consumer confidence resulting from stable borrowing costs. Overall, the RBI's policy decisions are anticipated to provide stability and support economic recovery, although the exact impact may vary across different segments of the economy. Investors and businesses alike will closely monitor subsequent developments to navigate their strategies in response to evolving market dynamics.

Kaushik Mehta, Founder & CEO of RUloans Distribution

"After the latest RBI MPC meeting, the RBI maintained the repo rate at 6.5 per cent. This decision reflects the RBI's cautious yet optimistic stance, aligning with a stable interest rate environment and fostering borrower confidence for informed financial decisions. Borrowers, particularly in home and personal loans, may explore options to optimise their financial commitments, such as transferring loans to banks offering lower rates or opting for part payments to reduce EMIs."

Mehta added the government's focus on real estate is poised to provide a significant boost to the housing loans segment, with policies and incentives aimed at stimulating activity and enhancing accessibility to housing finance, benefiting both borrowers and lenders. Furthermore, recent fiscal measures outlined in Budget 2024-25 aim to further support affordability and accessibility to loans, particularly benefiting middle-class individuals and stimulating economic growth within the housing sector.

Adhil Shetty, CEO & Co-Founder, BankBazaar

"KFS is a welcome extension from personal loans to MSME loans. In 2023, the RBI had provided guidance on penal charges to be clearly disclosed in the KFS. The KFS must include all must-know details of the loan in a templatised format for the borrower. It should mention Annual Percentage Rate, processing fees, penalties, various loan charges etc. A KFS was mandatory for individual loans. Now, all regulated entities must provide the KFS to all retail and MSME borrowers."

Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers

"RBI keeps rates unchanged at 6.5 per cent along with the withdrawal of accommodation. Unlike market expectations, RBI's tone was not dovish. Das was clear that tail risks have the possibility of undoing the work on disinflation. With RBI's inflation projection of 4.5 per cent for FY25, any expectations of cuts coming in the current year become unlikely. We think the progress in food prices will be the key monitorable for RBI's tone in the upcoming policy. Like other central banks, higher growth for the current and next year gives RBI more headroom to be on a wait-and-watch mode."

Uttam Tibrewal, Executive Director, AU Small Finance Bank 

"RBI’s policy was on expected lines with a focus on bringing inflation towards a targeted range of 4 per cent. Monetary policy stance and steady rates over the last one year have helped maintain healthy growth momentum while lowering inflationary pressures. Going forward we believe as inflation nears RBI’s 4 per cent goal, space for monetary easing would open up in the coming quarters, to support lower interest rates and credit demand.”

Tribhuwan Adhikari, MD & CEO, LIC Housing Finance

“The RBI's decision to maintain the repo rate at 6.5 per cent is as expected. The rate-hike cycle pause coupled with the projected 7 per cent GDP growth for FY25 gives an outlook of positivity. The effects of Government led infrastructure initiatives are visible nationwide and impacting housing demand positively, particularly in Tier-2 and Tier-3 cities. The Budget announcements on PMAY are going to give further impetus to the affordable housing segment. It will definitely aid in home loan business growth for lenders."

Niraj Kumar, Chief Investment Officer, Future Generali India Life Insurance Company Ltd.

"MPC continues to reprioritize inflation target head-on and distinctly indicates rate change in the near term is unlikely, given that growth likely to remain resilient and inflation though benign, would still be above the target.”

Umesh Revankar, Executive Vice Chairman, Shriram Finance

“The unpredictable global economic scenario has rightly prompted the Monetary Policy Committee to maintain its stance on withdrawing accommodation while keeping the repo rate unchanged at 6.5 per cent. The RBI has once again stressed that the lending ecosystem needs to become more customer-centric while emphasizing the broader vision of financial inclusion. Despite global challenges, the Indian economy has been resilient, with rural demand gaining momentum and urban consumption remaining robust. The economy is adapting well and exhibiting positive growth indicators. There is so much to look forward to as we step into what could be a transformative year for India and the world.”

Murthy Nagarajan, Head - Fixed Income, Tata Asset Management

"RBI in its monetary policy has kept the CPI Inflation target for next year at 4.5%. The potential GDP growth seems to be above 7% as RBI has projected growth of 7% even when global growth is slowing. As capex increases in the economy, we feel we may have potential growth rate of 8% with CPI inflation around 4%.The government along with RBI is working together to have high growth and low inflation in the coming decades, which auger well for our economy. On the liquidity front, they have stated they will be doing two-way operation to keep liquidity in balance, they are aiming for overnight rates to trade around policy rates of 6.5% as RBI stance continues to be withdrawal of accommodation. Given the geo-political uncertainty, RBI does not want to lower its cautious stance and put the Target of CPI inflation of 4 percent at risk. The debt market has reacted slightly negatively due to no statement of easing liquidity, but the long-term positive lies in their commitment to bring CPI inflation to 4% level. We should see 10-year yields going down to 7% in the coming days as monthly CPI inflation cools down below 5% in following months."

Gaurav Sharma, Chief Compliance Officer, FincFriends 

"The RBI's mandate to issue Key Fact Statements (KFS) for digital loans aims to enhance transparency in lending transactions, benefiting customers. Through a digitally signed single-file document, borrowers receive comprehensive loan details, facilitating authentication by the lender. This initiative addresses concerns of customers who may find it challenging to review loan terms solely on mobile apps or web pages. By promptly receiving the KFS via email or SMS, borrowers gain time to carefully examine conditions and make informed decisions within the lender's free look period. Crucially, any fees or charges not outlined in the KFS are prohibited, safeguarding customers from unauthorized lenders' hidden costs. Overall, the KFS mandate promotes transparency, empowers borrowers with accessible loan information, and shields their interests against undisclosed charges, thereby fostering trust and accountability in the lending ecosystem."

Anitha Rangan, Economist, Equirus

"In the last policy for this fiscal year, RBI has kept policy unchanged as expected. However the decision is not unanimous with a 5-1 vote. No change in stance. The policy estimates a strong revision in growth for FY25 to 7% from 6.5% (Q1-Q3FY25) in the previous policy. Alongside, inflation is moderately revised downwards to 4.5% from 4.6% in the same period. The governor in his speech noted that “job is not yet finished” with 4% target in mind. While batting for India’s resilience amidst global volatility, it appears that RBI is not in discussion for rate cuts as a) 7% growth is very strong and does not require rate support b) Inflation is subject to food price risks and 4.5% is not 4% on a durable basis. Also no giveaways on liquidity. In the quest to preserve the strength and bat for long term growth, RBI will rather look to maintain vigil and not in any rush to cut rates. The 7% growth does not seem to be needing central bank’s nudge".

Aalesh Avlani, Executive Director & Co- Founder, Credit Wise Capital

"The RBI MPC's decision to uphold the repo rate at 6.5% underscores a prudent stance towards economic stability. Amidst this backdrop, digital lending emerges as a catalyst for stimulating consumer expenditure and supporting the automotive sector. This trend was evident in the last few quarters too, including the festive period, where enhanced affordability in financing options spurred sales growth. We remain optimistic about the future as we navigate these favorable conditions and continue to drive forward".

Edul Patel, CEO, Mudrex 

"The RBI's choice to keep the repo rate at 6.5% showcases a strategic position amidst strong domestic economic momentum. By ensuring rate stability, the central bank intends to support continuous growth, creating a conducive environment for businesses and investments. The forecast of a 7% GDP growth for FY25 indicates confidence in the economy's resilience. This decision aligns with a measured strategy, promoting economic expansion and managing potential inflationary pressures. It highlights the RBI's commitment to managing the changing economic conditions wisely."

Alok Singh, Group Head-Treasury, CSB Bank

"RBI's balanced stance on liquidity augurs well for the economy. It's prudent not to let go of the gains made on inflation; therefore any overhang of surplus needs to be avoided. The inflation projection of 4.5% next year may be conservative and we may see some change in stance post Q2 next year. The RBI will consider easing liquidity first and then will resort to cutting rates if required."

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