The Reserve Bank of India Governor sprang a surprise on Thursday by keeping its key policy rate unchanged. The decision brought cheer to affordable and mid-segment home buyers who had feared a possible rate hike. Sensing the mood, real estate and financial stocks clocked gains.
Further rate hikes may be considered if necessary
Realty index climbed nearly 3% and Financials rose nearly 0.5%. The RBI Governor said the policy stance remains focused on “withdrawal of accommodation” which is a signal that they could consider further rate hikes, if necessary. “It is a pause, not a pivot,” Shaktikanta Das said at a media conference after the monetary policy announcement.
Some other central banks, including in Canada, Australia and Indonesia, have similarly paused, while the US Federal Reserve, Bank of England and the European Central Bank have indicated they may pause, to assess the impact of past hikes and banking sector turmoil on growth and inflation. (Ref: Reuters) “We have to be extremely prudent in our actions,” Das said in his statement, citing “turmoil in global economy and unprecedented uncertainty in geopolitics.” He added that “our job is not yet finished and the war against inflation has to continue,” reiterating the resolve to bring inflation back within the central bank’s target band of 2%-6%
Retail inflation increases
Retail inflation rose 6.44% year-on-year in February, easing from 6.52% in January but has remained above the central bank’s mandated target range for 10 out of the last 12 readings. The central bank sees inflation at 5.2% in 2023- 24, and GDP growth is seen at 6.5% in the financial year beginning April 1 (Ref: Reuters). “With unyielding core inflation, we remain firm and resolute in our pursuit of price stability which is the best guarantee for sustainable growth,” said the committee in its statement. “The impact of our actions over the past 12 months is still playing out and would increasingly weigh on the future inflation trajectory.”
Government bond yields fell sharply after the surprise RBI decision. The 10-year benchmark 7.26% 2032 bond yield dropped to 7.1469%, the lowest level since September 15 immediately after the policy announcement, as against 7.2857% before the decision.
The RBI stance has come as a breather for home buyers and the industry, in the backdrop of the rising inflation. “Maintaining the repo rates is a welcome decision. This may put at rest the anxiety amongst borrowers about possible EMI increase. The move sends a positive signal and we expect real estate to build on this sentiment. It will also help prospective homebuyers to take a more informed decision,” said Y. Viswanatha Gowd, Managing Director & Chief Executive Officer, LIC Housing Finance.
Sandeep Runwal, President, NAREDCO Maharashtra said that “this will positively impact the rate sensitive segments of affordable and low-income group housing. Keeping the repo rate unchanged will help in offsetting the rising property rates and will reduce home buyers' burden to a large extent. The real estate industry is linked with several other allied industries and therefore it impacts the entire economy. We urge the government to offer relaxations in stamp duty fees, which it had offered at the time of the pandemic, so as to further encourage homebuyers' interest in buying.”
Since May 2022, the RBI multiple repo rate hikes has led to the rate being revised from 4% to 6.50%, resulting in a cumulative rise of 2.50 bps. “With clear growth-oriented signals for the rest of the year, investor confidence is likely to get a significant boost in the coming days. The financial stress on the part of select developers and homebuyers is likely to get a relief from the pause in rate hikes. All of this is expected to translate into sustained demand in residential real estate,’’ said Anurag Mathur, CEO, Savills India, a real estate consultancy
