Home Loans To Become Cheaper As RBI Lowers Repo Rate To 5.4%

Accommodation Times

August 7, 2019


The Monetary Policy Committee (MPC) Reserve Bank of India on Wednesday reduces the repo rate for the fourth consecutive time this year from current 5.75 per cent to 5.40 per cent.

Four members in MPC voted to reduce the policy repo rate by 35 basis points and whereas two voted for 23 basis points.

The MPC also decided to maintain the accommodative stance of monetary policy.

In the MPC’s June resolution, real GDP growth for 2019-20 was projected at 7.0 per cent – in the range of 6.4-6.7 per cent for H1:2019-20 and 7.2-7.5 per cent for H2 – with risks evenly balanced. But later it revised downwards from 7.0 per cent in the June policy to 6.9 per cent – in the range of 5.8-6.6 per cent for H1:2019-20 and 7.3-7.5 per cent for H2 – with risks somewhat tilted to the downside, Committee said in the statement.

MPC projects 7.4 per cent GDP growth for Q1:2020-21.

Construction activity indicators slackened, with contraction in cement production and slower growth in finished steel consumption in June. Import of capital goods – a key indicator of investment activity – contracted in June, it said.

Repo rate refers to the rate at which commercial banks borrow money from the RBI in case of shortage of funds. It is one of the main tools of RBI to keep inflation under control.  A repo rate cut help banks to reduce interest rates on home loans, car loans and personal loans.

GDP growth revised to 6.9 per cent for this year from the earlier projection of 7 per cent, Committee said.

Dr Niranjan Hiranandani, Senior Vice President, ASSOCHAM and National President- NAREDCO said, We believe that the credit policy announcement is an extension to what was already initiated by the central government in the Union Budget 2019-20 for giving fiscal stimulus to NBFCs. The industry which is facing a huge challenge in terms of acute shortage of liquidity would get respite with banks now allowed to lend more to Non-Banking financial companies (NBFC). As the RBI Governor said, a 35 basis point repo rate cut would lead to credit demand picking up and reviving growth. The benchmark rate is now at its lowest since April 2010.”

“In light of the present economic distress in the country, we welcome the move to bring down REPO rate, we would have really expected to see a more substantial cut is the need of the hour for its effective transmission to ending users. The NBFC liquidity crisis has severely choked credit availability for the industry, especially developers, as they struggle to raise even construction finance. While the limit for priority sector lending for housing has been enhanced from INR 10 Lakhs to 20 Lakhs, the scope of this move is limited to the affordable housing segment. More needs to be done to provide a liquidity stimulus to the broader real estate spectrum. As the threat of a slowdown looms large on the Indian economy, strong measures such as substantial rate cuts and meaningful sector-specific policies need to be taken”, Shishir Baijal, Chairman & Managing Director, Knight Frank India said.

According to Sanjay Dutt, MD & CEO, Tata Realty & Infrastructure Limited, “The move is expected to improve buying sentiments in the market and provide the much-needed impetus to the real estate sector that has been battling with tight liquidity condition. We are hopeful that the festive season would bring in more cheers with strong demand revival and improved investor interests.

“We believe that more banks will practice the revised rates, while lending. This will help sell the inventories at a faster pace, and it will also encourage developers for new launches. With this policy, the RBI and the Government are providing a boost to economic growth, through a fiscal and monetary impact”, Amit B Wadhwani-Co-Founder, SECCPL said.

Bijay Agarwal, MD, Salarpuria Sattva Group said, “When the banks are constrained with their cost of borrowing, they will be able to lower their respective marginal cost of funds based lending rate (MCLR), which directly impacts loans. In real estate, a reduction in the cost of funds means the same can be passed on to customers directly. This will encourage customers to buy properties due to reduced interest on home loans, hence increasing the purchasing power of the common man.”

“The RBI has pumped a lot of liquidity into the banking system which should make a clear pledge to keep the banking system glow with liquidity. While the cost of capital is headed lower, we trust future commencement will be in baby steps, motivated by lowering of inflation expectations, a global recession notwithstanding. It will definitely spur growth for the real estate sector specifically. There have been many meaningful interventions by the government and regulator which has provided a positive boost to the home buying sentiment among the potential homebuyers. Rate cuts will guarantee affordability in terms of home loans and thus lowered EMI, lower GST, tax discount for the middle class as per as interim budget”, Ashok Mohanani, Chairman, EKTA World said.

The next meeting of the MPC is scheduled during October 1, 3 and 4, 2019.