RBI cuts repo rate for third time in 2013
Mumbai: On a move to step up real estate sales, Reserve Bank of India (RBI) has cut Repo Rate for the third time since January by 25 basis points. However, the lowering of the Repo rate by 0.25 percent may no sooner be beneficial to home loan seekers as it is too small to have any impact on retail lending rates immediately.
The short-term lending (repo) rate has been reduced to 7.25 percent from 7.50 percent, lowest since May 2011.
RBI had announced 25 bps rate cuts twice this year, in the end of January and March. Though the repo rates were slashed earlier by mere 25 bps both the times, market experts and developers were expecting that more such rate cuts were likely to come in their way. The cash reserve ratio (CRR) is kept unchanged at 4 percent, on concerns of inflation, which has disappointed the real estate market and stock market as well.
In general, it is believed that the rate cuts may bring down the negative sentiments of homebuyers and the realty sector besides increasing the liquidity in the sector. It may allow banks to cut down the interest rates which would further decrease the cost of funds. This may be beneficial for both home buyers as well as developers who have been struggling with cash crunch in recent times. Thus, the demand for properties is likely to rise in the near future boosting the whole market scenario.
RBI Governor, D Subbarao, said that only moderate progress in economic activity would be observed this year compared to last year. He said that the second half of the year would see faster increase in the sector’s growth while some other industry experts and bankers opined that the move would not impact retail and corporate loans. They ruled out the possibility of rate cut in the immediate run.
Monetary policy should remain alert to the risks on account of the Current Account Deficit (CAD) and its financing, which could warrant a swift reversal of the policy stance, said a leading banker. He described CAD as “by far the biggest risk to the economy”.
Following the policy announcement, the Bombay Stock Exchange (BSE) declined by 160 points or 0.81 percent.
However, besides welcoming the 0.25 percent repo cut by the RBI in its monetary policy review, the real estate in India seeks the RBI to keep up the repo rate cut trend so that the interest cost to builders and homebuyers would further fall significantly.
Several leading realty experts said that though the rate cut was a good move, it is “too little” to boost the sector as well as the economy hence stressing on the need for further reduction. But if financial institutions pass on the rate cut to consumers, then it would have a positive impact on the sector. They hope that RBI continues monetary easing in the coming months.
Also, the Confederation of Real Estate Developers’ Associations of India (CREDAI) has requested the RBI to formulate a special policy for the housing industry to focus on affordable housing.
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