RBI Holds Rates, Wants Faster Rollout Of Affordable Housing Programme
After announcing a repo rate cut of 25 basis points on August 2, the Reserve Bank of India (RBI) decided to leave key policy rates unchanged in its Fourth Bimonthly Monetary Policy Statement on October 4. The six-member Monetary Policy Committee (MPC) led by Governor Urjit Patel has kept the repo rate unchanged at 6.00 per cent and the reverse repo rate unchanged at 5.75 per cent. At 6.25 per cent, the bank rate and the marginal standing facility rate also remain unchanged.
The earlier reduction in repo rate — the rate at which the Central bank lends money to financial institutions — made home loans cheaper, bringing down the total cost of home buying.
"The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of four per cent within a band of +/- 2 per cent, while supporting growth," the RBI said.
While five members of the MPC voted in favour of the decision, one member voted against it. The next meeting of the MPC would be held on December 5-6.
"We expect the RBI to stay on hold at the upcoming meeting as rising incoming inflation and projections of further acceleration in inflation ahead will mean that there would be limited space for further easing," financial services major Morgan Stanley has earlier said in a research note.
The change we need
While revising the gross value-added growth forecast for the financial year 2017-18 to 6.7 per cent from the earlier 7.3 per cent , the RBI has suggested several measures to boost the economy. A “concerted drive to close the severe infrastructure gap” and “restarting of stalled investment projects” may be the way forward to push growth. The RBI noted that the affordable housing mission should be implemented faster with the help of a time-bound single-window clearances system. The Central bank also urged states to rationalise the "excessively high stamp duties" to bring down the total cost of real estate transactions.
The RBI governor also said that the implementation of the Goods and Services Tax (GST) had rendered short-term prospects uncertain. The MPC is of the view that further simplification of the new tax regime would also be necessary to "reinvigorate investment activity" in the country.
The real question
While the RBI has decided to hold rates, banks have started launching lucrative offers for homebuyers to cash in on the festive season to improve business. Among the new offers that may attract borrowers’ attention are ICICI Bank’s cash-back offer and Axis Bank’s equated monthly installments (EMI) waiver. Recently, several public lenders, including State Bank of India, have also reduced base rates to benefit their existing customer base.
"Home loan rates are at their lowest and are unlikely to go down from here immediately. So, consumers must utilise this opportunity and book their homes ahead of the festive season to cash in on deals offered by developers," said Hiranandani.
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