RBI rate cuts will help banks attract genuine end-user home buyers: JLL India

The small steps taken by the Reserve Bank of India towards rate cuts will help banks attract genuine end-user home buyers, global real estate services firm JLL India told dna.  

The Reserve Bank of India (RBI) in its first bi-monthly monetary policy statement for FY17 on Tuesday cut the key interest rates by 0.25%. 

With this, the repo rate has now come down to 6.50%. In February, the RBI had maintained the repo rate at 6.75%. The repo rate is the rate at which the RBI lends to the banks. 

While the RBI has cut 150 bps since the beginning of the accommodative cycle, according to the apex bank's Governor, banks have not passed on the full benefit of the rate cuts to the final borrowers, which keeps housing loans expensive.

According to JLL India, the latest rate cut is very much in line with market expectations. 

The Indian residential real estate market has seen a huge slowdown in the last year due to high borrowing costs, registration costs, among others, which discouraged many buyers from buying their first homes. 

"While on one hand, developers are doing all they can to ensure that homes become more affordable to a larger set of buyers, small steps towards rate cuts by RBI will help banks to attract genuine end-user home buyers," Anuj Puri, Chairman and Country Head, JLL India told dna. 

The retail inflation measured by the Consumer Price Index (CPI) dropped sharply in February after rising for six consecutive months, the RBI said in a post-policy statement. 

The CPI-inflation for the February month declined to 5.18% from 5.69% in January largely on the back of stable food and oil prices giving hopes that there is no major risk to inflation in the coming months.  

Inflation has evolved along the projected trajectory and the target set for January 2016 was met with a marginal undershoot, RBI said. Experts expect retail inflation to cool to 5% in March.

"Given that the inflation projection for the near term is also favourable, buyers can be rest assured that rates are not going to rise in the near- to medium-term," Puri said.

The RBI said in its monetary policy statement that it would remain 'accommodative', raising the prospects of a further rate cut in the coming months. 

"The stance of monetary policy will remain accommodative. The Reserve Bank will continue to watch macroeconomic and financial developments in the months ahead with a view to responding with further policy action as space opens up," the central bank said in the statement following the policy review.

Home buyers can expect further cuts in interest rates with a stability in macroeconomic fundamentals. 

"They can expect few more rounds of rate cuts going forward, given that there are no untoward macroeconomic shocks expected," Puri added.