RBI Leaves Repo Rate Left Unchanged On Virus Concerns

The Reserve Bank of India (RBI) on April 7, 2021, left key rates, including the repo rate, unchanged amid lingering fears that India might have to announce another nation-wide lockdown because of a dramatic spike in coronavirus cases.

With this, the repo rate remains unchanged at 4% while the reverse repo rate sticks at 3.35%. This is the fifth time in a row that the apex bank has decided to leave the rates unchanged as it attempts to spearhead an economic recovery for Asia’s third-largest economy in the aftermath of the coronavirus spread.

Last time, the six-member monetary policy committee (MPC) of the RBI tweaked rates in May 2020.  The banking regulator also continues to maintain an accommodative stance in order to support growth.  

The move to leave the repo rate, at which it lends money to banks in the country, is likely to prompt banks in India to continue offering record low home loan interest to buyers in order to continue the growth momentum going in the country’s second-largest employment generating sector, real estate.  

However, the developer community is of the view that a slight reduction would have been more appropriate, considering demand in the housing sector has been improving on government support measures.

"Keeping in mind the resurgence of Covid infections across the country, a slight reduction in the key rates would have been widely celebrated. With the temporary reduction in transaction costs being withdrawn, in states like Maharashtra, the expectation amongst stakeholders of the industry is that the banks should now further sweeten the lending rates, at least till such time that the economy gets back to the pre-COVID levels," said Kaushal Agarwal, chairman, The Guardians Real Estate Advisory.

The decision would however prompt banks to continue offering record low home loan interests.

“The RBI move to hold key rates unchanged, including holding the repo rate at 4%, is along expected lines, amid a sharp increase in COVID-19 cases in India that has forced many states to announce partial curfews and lockdowns. Even though public lender SBI recently announced a hike in its home loan rates, triggering expectations that other banks might follow suit, we hope that lenders in India would take a cue from the RBI move to leave rates unchanged and continue to offer homebuyers the benefit of a historically low interest rate regime. This is the first review of the monetary policy in the new fiscal year and it is likely that RBI will carefully monitor how the COVID-19 situation evolves and change its stance later in the financial year as the need arises,”  Dhruv Agarwala, Group CEO,  Housing.com, Makaan.com and Proptiger.com.

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RBI Leaves Repo Rate Left Unchanged On Virus Concerns

February 5, 2021: On widely expected lines, the Reserve Bank of India (RBI), decided to leave the repo rate unchanged at four per cent. The RBI has also maintained its accommodative stance and a status quo the reverse repo rate, at 3.35 per cent.

As India moves to attain normalcy after the Coronavirus pandemic-induced economic mayhem, the apex bank is expected to maintain the rates at this level at least through 2023, a Reuters poll had earlier indicated.

Recall here that this is the first meet of the RBI’s six-member monetary policy committee, after the centre announced its Budget for FY22, on February 1, 2021. The RBI has maintained rates since May 22, 2020. However, since March 2020, it has lowered the repo rate by 115 basis points.

While stating that the economy is poised to improve, with signs of recovery indicated by an expansion in the list of normalising sectors, RBI governor Shaktikanta Das said that signs of revival were also visible in India’s housing sector, with supply and demand, both showing improvement amid an improvement in consumer sentiment. Data available with PropTiger.com show new supply and sales improved in the October-December period (fourth quarter of Q4) of 2020, in India’s eight prime residential markets.

“The Union Budget 2021-22 has introduced several measures to provide an impetus to growth. The projected increase in capital expenditure augurs well for capacity creation thereby improving the prospects for growth and building credibility around the quality of expenditure. The recovery, however, is still to gather firm traction and hence continued policy support is crucial,” Das said.

Commenting on the policy move, Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and Proptiger.com, said: “The decision of RBI to keep the repo rate unchanged along with accommodative stance is understandable at this juncture, although a further cut in the key rates would have given a boost to current demand uptick that we have seen recently. The measures announced by the RBI governor today for liquidity enhancement in the economy is indeed a good step, and was much required.”

While the RBI move is on the expected lines, real estate developers have aired disappointment over the decision.

“After a budget that had limited announcements for real estate, the sector was hoping against hope for a further reduction in the repo rates. The reduction would have spurred growth in demand for real estate assets that have been severely hit as a result of the pandemic and subsequent lockdowns,” said Kaushal Agarwal, chairman, The Guardians Real Estate Advisory.

The next meeting of the MPC is scheduled during April 5 to 7, 2021.

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RBI Maintains Status Quo On Repo Rate

December 4, 2020: In a widely anticipated move, the Reserve Bank of India (RBI), on December 4, 2020, decided to leave the repo rate unchanged at 4% amid high inflation and slowing economic contraction. The six-member monetary policy committee (MPC), headed by governor Shaktikanta Das, also decided to continue with an ‘accommodative’ stance, to boost growth through consumptions, as signs of recovery become visible in the aftermath of the Coronavirus pandemic.

“The MPC decided to continue with an accommodative stance of the monetary policy, as long as necessary, at least till the current financial year and into next year, to revive growth on a durable basis and mitigate the impact of COVID-19, while ensuring that inflation remains within target," Das said, at the virtual announcement of the policy move.

In a Reuters poll conducted in November 2020, all 53 analyst-participants had said they did not expect any change in rates, with the next rate cut now seen in the April-June quarter.

Impact on housing demand

Since home loan interest rates are already at a record low with most banks in India offering home loans at below 7% currently, the chances of further correction are slim. However, the demand for homes will continue to be robust, because of various factors.

“The RBI’s decision of keeping the repo rate unchanged was on expected lines, owing to the rise in inflation in recent months. In the wake of COVID-19, Q2 of FY21 witnessed a strong improvement in consumption and therefore, the RBI maintaining the status quo for the third time in a row is a positive step in keeping inflation under control,” said Anshuman Magazine, chairman and CEO, CBRE India, South-East Asia, Middle East and Africa.

“The strengthening of recovery in rural demand and the momentum gain across the urban sector, will also support the real estate sector. Additionally, the policy support being provided by the government will continue to boost residential uptake and support construction activity in the upcoming months,” he added.

While lauding the RBI’s move, Ambience Group's Ankush Kaul, however, cautioned that disruptions might upset the recovery. "There is a need to put a check on the spread of the virus and disruptions like the farmers’ protest, etc. These may collectively dampen the festive spirit and the upswing in home buying that we witnessed a few months back," said Kaul, who is the president of sales and marketing at Ambience Group.

"The real estate industry stands to benefit due to several measures taken by the government so far. However, there is a lot that needs to be done for the sector to improve the pace of growth. We are looking forward to a bigger rate cut and sector-specific lending provisions to improve both the liquidity scenario and consumer spending ability," said Surendra Hiranandani, CMD, House of Hiranandani.

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RBI Leaves Repo Rate Unchanged Over Inflation Concerns

October 9, 2020: Banking regulator RBI (Reserve Bank of India) left its key lending rates unchanged as supply-side disruptions stoked high inflation, while economic uncertainty loomed large over the country amid spiking Coronavirus infections.

In its penultimate policy review for 2020 on October 7-8, the six members MPC (monetary policy committee) decided to tightly hold on to the repo rate at 4%, the reverse repo rate at 3.35% and the  marginal standing facility (MSF) rate and the bank rate' at 4.2%.

The reverse repo rate is the rate at which the RBI borrows money from banks. Cash reserve ratio is the percentage of total deposits that banks must keep in their reserves, on which they earn no interest. Depending on the situation, this money is infused into the system to improve liquidity.

After its inception in India in 2000, the repo rate was previously lowered to its lowest level of 4.74% in April 2009, in the wake of the global slowdown.

Future reduction in rates is, however, a possibility as the apex bank continues to maintain an ‘accommodative’ stance to help the Coronavirus-hit economy spring back to its feet. "It also decided to continue with the accommodative stance of monetary policy as long as necessary -- at least during the current financial year and into the next year -- to revive growth on a durable basis and mitigate the impact of Covid-19, while ensuring that inflation remains within the target going forward," RBI Governor Shaktikanta Das said.

As the RBI move was broadly expected, with retail inflation remaining at a level above the RBI comfortable zone, real estate developers in India have shown no surprise over the move. They are, however, of the opinion that financial institutions must continue with rate reduction to encourage homebuyers to invest in property.

“Even though the apex bank has kept the rates unchanged, we still believe that there is room for financial institutions to cut down on their lending rates for their customers. During the lockdown, the RBI reduced the repo rate which is yet to be fully passed on to the customers,” said Amit Modi, director, ABA Corp, and president-elect, CREDAI, western UP.

According to Abhishek Bansal, executive director, Pacific Group, it was an expected move as the repo rate was already low. “The real estate market has started picking up as people are enjoying the low-interest rates and subdued pricing,” he said.

Recall here that banks have brought down home loan interest to sub-7% annual interest level after the RBI, though consecutive cuts brought the repo rate, at which it lends money to scheduled commercial banks, to 4%. Most public lenders including Union Bank, Canara Bank, Punjab National Bank, etc., are currently offering home loans at over 6% interest.

To cash in on the festive spirit, lenders like SBI are also offering waivers on associated charges such as the processing fee on home loan approval.

“The sector is already reaping rewards of the multiple steps taken by the government and low home loan interest rates extended by banks. The RBI should have made some announcement to improve liquidity in the real estate sector, as many developers are facing the heat after COVID-19 led to a complete shutdown of operations,” said Deepak Kapoor, director, Gulshan Homz.

According to Achal Raina, COO, Raheja Developers, the extension of lending limit for retail exposure from Rs 5 crores to Rs 7.5 crores and reduction of risk weightage on home loans and linking it with LTV ratio. augurs well for the real estate sector.