Repo Rate

RBI Reduces Repo Rate By 35 Bps, In 4th Consecutive Cut

3:05 PM

RBI Reduces Repo Rate By 35 Bps, In 4th Consecutive Cut

The Reserve Bank of India (RBI), on August 7, 2019, reduced the repo rate by 35 basis points (bps) to bring it down to 5.4 per cent, a move prompted by low growth and weak inflation. This is the fourth consecutive cut in rates that the banking regulator has resorted to, since the new governor Shaktikanta Das took charge, in December 2018.

Almost 80% of 66 economists who took part in a Reuters poll in July 2019, expected the RBI to cut its benchmark repo rate by 25 basis points to 5.50 per cent, while announcing its third monetary policy review on August 7, 2019. For the uninitiated, repo rate is the rate at which the RBI lends money to scheduled banks. A reduction in repo rate, means banks will be in a better position to offer loans to borrowers at lower interest.

How Does It Help Home Loan Borrowers And The Real Estate Sector?

Several banks have already implemented a reduction in their marginal cost of funds-based lending rates (MCLR), after the RBI started the rate cut spree. The move would bring down the EMIs (equated monthly installments) that home loans borrowers, exiting and new, pay every month. Private lenders HDFC Bank and ICICI Bank have brought down their lending rates to 8.6 per cent, while public lenders State Bank of India and Punjab National bank have brought down the interest rate to 8.4 per cent.
Lower rates may prompt homebuyers to make a move, at a time when the real estate sector is struggling with a plethora of problems. Amid low sales volumes and high inventory, India’s real estate sector is struggling, to get over an ongoing slowdown that has plagued sectorial growth for several years now. Coupled with several other measures that the government has launched to fuel growth in the sector, the rate cut might trigger fresh demand in major property markets.
"The rate cut, along with various other reforms announced recently, is expected to cheer up developers and buyers, says Surendra Hiranandani, chairman and managing director, House of Hiranandani. "The reduction in repo rates in the previous reviews, did not have any significant impact on lending rates. Going forward, it is imperative for banks to reduce the lending rates and ensure that home loan borrowers reap the benefits of this move. Real estate being a highly cost-sensitive sector, demand will only pick up, if the cut is substantial enough, to result in significant cost savings," he adds.
Data available with shows that home sales in the top nine property markets, declined by 11 per cent in the quarter ending June of FY20. Real estate developers were also sitting on an inventory stock consisting of over 4 lakh unsold units in these markets, at a time when the builders in the country are under tremendous pressure owing to a liquidity crunch.

- by PropTiger
Source : Housing.Com

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