Apex Bank keeps repo rate unchanged

The Reserve Bank of India’s Monetary Policy Committee on Friday (August 6, 2021) has kept the repo rate unchanged at 4 per cent while maintaining its "accommodative" stance. The reverse repo rate or the central bank’s borrowing has been unchanged at 3.35 per cent. The central bank has also maintained the GDP growth forecast for FY22 unchanged at 9.5%. It sees CPI inflation at 5.7% for FY22 versus 5.1% projected earlier. The RBI Governor Shaktikanta Das also announced certain measures w.r.t. to TLTRO and GSAP auctions. Das said that India is in a much better position as compared to June 2021.
Considering the hardening inflation and looming Covid-19 third wave, it was expected that the rate setting committee will keep the interest rates and policy stance unchanged. City Air News has received reactions on the same. Here are some of these reactions:

Nishant Arora, Co-founder & Director, Setup Services India 
“The extension of the On-tap TLTRO scheme will aid the MSME sector to contribute towards the healthy GDP prediction of the Apex bank. The RBI continued its accommodative stance that reflects the realization of maintaining policies to enhance spending and manufacturing. We have to understand that the startups and MSMEs are turning out to be the backbones of the economy, and the constant government support to these segments sends optimistic signals.”

Dr. Poonam Tandon, CIO, IndiaFirst Life Insurance Company Limited.
“The RBI policy was on expected lines, where it maintained a status quo on policy rates with accommodative stance. While CPI inflation surprised on the higher side, GDP forecast has been retained at 9.5% in FY22. RBI believes continued policy support is required to support the nascent recovery. It announced VRR (Variable Reverse Repo), which is likely to absorb the excess liquidity. RBI also added that focus is on orderly evolution of yield curve. Overall, RBI remains committed to focus on durable recovery with sustainable growth while maintaining financial stability. It is important to ensure adequate liquidity in the system during these ambiguous times with a pro-growth, ample liquidity, and continuation of the policy stance.”

Anjana Potti, Partner, J Sagar Associates
“The monetary policy reflects the overall market sentiment of ‘wait and watch’ with the projected GDP, inflation and liquidity being more or less constant. The MPC believes that continuing the accommodative stance will nurture the emerging and cautious recovery in the domestic economy in the relatively uncertain financial environment(where the pace of global recovery is being reined in by the resurgence of infections ) – which will go a long way in turn to reduce the  uncertainty in the market factors for investors. In keeping with the accommodative stance, the RBI has also extended the TLTRO and  marginal standing facility up to September 30, 2021 and December 31, 2021 respectively continuing to ease liquidity pressures on NBFCs and banks and boosts access to funds by the market. Considering the impact that the transition from LIBOR will have on the financial market, the RBI has decided to amend the guidelines related to export credit in foreign currency and restructuring of derivative contracts to permit the adoption of a widely accepted  alternative reference rate in the relevant currency. As a consequence of such impending amendments  the transition to an alternative reference rate  will not be treated as a ‘restructuring’ under the  ‘Prudential Norms for Off-balance Sheet Exposures of Banks – Restructuring of Derivative Contracts’.” 

Abheek Barua, Chief Economist, HDFC Bank  
“The RBI has continued with its line of supporting growth despite the recent spikes in inflation. That said, recognizing the concerns around inflation (RBI revised up its inflation forecast to 5.7% from 5.1% for FY22) and the excess build-up in systemic liquidity over the last month (at INR 8.5 lakh crore as of 4 August), we saw the central bank take its second step towards liquidity normalization. The first being the tolerance towards some upward adjustment in the 10-year yield in July.
The RBI announced an increase in the quantum of variable reverse repos (VRR) by INR 2 lakh crore and also provided forward guidance on systemic liquidity to be close to INR 4 lakh crore by September-end. In response to tighter liquidity conditions, we expect short term rates to increase and return on instruments like CPs to rise. That said, this liquidity normalization should be viewed as a gentle calibrated move, partly in response to large excess liquidity surplus in the system, and not as an aggressive roll-back of monetary policy support.
With regards to the bond yield curve, while the 10-year yield is likely to inch up in response to the policy announcement today, the uneven structure of the curve could persist unless there are more evenly distributed interventions, across the curve, through G-SAP, OMOs, Operation Twists by the central bank.”
 

Nishant Deshmukh, Founder and Managing Director, Sugee Group 
“The RBI’s decision to maintain an accommodative stance has invoked a sense of optimism. The Repo Rate and Reverse Repo Rate remains unchanged at 4% and 3.35% respectively. This will act as a huge catalyst to infuse sufficient liquidity in the economy. The sector is recovering from the disruptions caused by the Covid-19 pandemic and with this measure, it will bring about a drive in the market and tame the inflation in the system. Lower home loan rates will definitely be a boon to enhance homebuyers' buying sentiments and encourage fence sitters to purchase their dream homes. This move, along with the government’s ambitious proposal to boost affordable housing, will aid to bring about a strong momentum in the segment and reconcile the economy. We expect the banks to pass on the benefits of these rates to the homebuyers and improve the revival of the real estate sector.”

Sandeep Runwal, Managing Director, Runwal Group, President Elect, NAREDCO Maharashtra
"The RBI has declared the accommodative policy stance amid the fears of the expected third wave of the pandemic yet again. It is imperative that low mortgage rates would continue for at least some more time now or maybe until the end of the year. This will provide the required fuel for the growth of the economy along with the real estate industry with which several other allied sectors are linked. Apart from the low-interest rates, the consumers' realization of owning a home along with the stamp duty cut in the key markets were the growth drivers for the real estate sector in the past few quarters and the strong demand is expected to continue going ahead."

Vinay Kedia,,Director, Prescon Group
"The RBI leaving the key rates unchanged was very much expected as the slow easing of localized lockdowns, slow pace of vaccinations and the looming threat of another wave continue to hinder economic revival. Although the low interest rates will provide a sustained growth for the real estate sector, the developer's focus on the completion of projects and overall economic recovery will be the key factors driving the real estate demand going forward. The homebuyers should take advantage of the current situation because there are chances that the prices might go upwards later on account of reducing supply and the pressure of increased costs of raw materials such as steel and cement.”

Himanshu Jain, VP - Sales, Marketing and CRM Satellite Developers Pvt. Ltd.
“Repo rate cuts have been kept unchanged time and again by the RBI during the last few quarters to keep the economy of the country afloat amidst the pandemic. Maintaining an accommodative stance indicates the RBI will intervene to provide the right push and direction to growth whenever necessary. The current scenario offers excellent investment opportunities in the residential segment as affordability is at all-time high. We require support from the banks by providing adequate liquidity that will boost the real estate sector."

Dr. Samantak Das, Chief Economist and Head Research & REIS, JLL 
“RBI has upheld its accommodative stance and kept the repo rate unchanged at 4% during the monetary policy committee meeting held today. ‘Strong and sustainable growth’ continues to remain the cornerstone of the Central Bank’s philosophy while it takes into cognizance the current rising inflationary trends. Citing the high inflation levels to be transitory in nature driven by short term supply side constraints, the Bank draws attention to the promising high frequency indicators such as consumption, investment and external demand which are regaining traction as the economy is opening up in a phased manner.
With the concerns of the second wave ebbing supported by aggressive ongoing mass vaccination, broad-based policy support, normal monsoons, likely easing of supply side issues, RBI maintains its growth forecast for FY 21-22 at 9.5%. As the economy gradually gains foothold in the aftermath of the receding impact of the second wave, RBI has indicated greater confidence in the resilience of the Indian economy.
 
Green shoots in the residential sector have emerged in tandem with the gradual improvement in the economic environment as businesses reopen. Prevailing lower home loan rates supported by RBIs policy rate stance, stable prices and attractive payment plans and schemes of developers are aiding the translation of pent-up demand into sales. If the downward trajectory in COVID-19 cases is sustained, the sector is expected to make a healthy recovery in H2 2021.”

Ashok Mohanani, President - NAREDCO Maharashtra
"The economic growth needs to be supported through monetary policy and this is the foremost reason that the RBI has continued its accommodative stance. It has focused on balancing liquidity in the financial system while keeping inflation within its target. The interest rates will continue to be at a record low for some time, however, the banks should pass on the benefits to the customers which will boost real estate demand. Although both the Central and the State governments are focusing on reviving the economy with various policy measures, a lot needs to be done to mitigate the adverse impact of the overall pandemic. We at NAREDCO have already urged the State Government to reconsider their decision and reinstate the stamp duty reduction till March 2022 so that home buyers continue to be encouraged and invest in their dream homes."

Cherag Ramakrishnan, Managing Director, CR Realty
"The RBI's approach to continue with a 'wait and watch' mode is on expected lines to enable the growth momentum that seems to have set in during the last 2 months. With the Covid uncertainty looming, this seems to be a prudent move to allow growth to firmly set it. This has allowed for all-time historic low home loan rates which have played a significant role in reviving the housing demand as compared to the pre-Covid era. The pent-up demand, the opening of economic activities, and continuous Government interventions have also helped in lifting the market sentiments. We feel that the demand for homes will now gain momentum going into the upcoming festive season”

Shraddha Kedia-Agarwal, Director, Transcon Developers
''RBI maintaining status quo on key policy rates was expected given the inflationary concerns in recent months. The low-interest rates for the last few months have already given a boost to the real estate sector upticking the demand in the last few quarters and enhancing the confidence of the homebuyers. The decision will help to sustain liquidity for some period as we are already witnessing the derailment of economic momentum due to the Covid-19 pandemic and lockdowns in different parts of the country. It will also help in sustaining economic stability as well as keep the real estate sector stay afloat during these unprecedented times.''

Pritam Chivukula, Co-Founder & Director, Tridhaatu Realty, Hon. Secretary, CREDAI MCHI
"We welcome the RBIs decision to continue with their accommodative stance. We urge the Central Government to address the deteriorating health of MSMEs and various other sectors which have been severely impacted by the second wave of the pandemic and are still struggling to get back on track. The low interest rates have been a crucial factor in the revival of the demand in the real estate sector. The buyers are already coming back to the market and we feel that the upcoming festive season will be a lot better than the previous years."

Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory
"The RBI and especially the MPC are to be commended for maintaining an accommodative stance for the seventh consecutive time now. Their approach towards tackling the situation created by the pandemic and steps taken to help revive the economy will go down in history as being one of the finest. The reduction in stamp duty charges in some parts of the country along with the all-time low housing loan rates have given the much-required fillip to sales activity in the last few quarters. 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."

Bhushan Nemlekar, Director, Sumit Woods Limited
"On an expected line, the monetary policy committee (MPC) has kept the repo rate unchanged with an extended accommodative stance for the seventh consecutive time that will continue to serve the marketswell. The prevailing low home loan rates are already enticing for homebuyers. It's high time the banks need to pass on the benefits to the homebuyers. With the interest rates at a record low, the Government will continue taking affirmative measures as long as it is necessary to revive the economy and alleviate Covid-19 impact."

Ashok Mohanani, President, NAREDCO - Maharashtra  and CMD, Ekta World

"At NAREDCO, we were pursuing with Maharashtra's Real Estate Regulatory Authority seeking for extension of stipulated timelines for completion of real estate projects. Our consistent demand has been heard by the Regulator and the Authority has now extended the mandatory timeline for project completion by another six months. It is a welcome move that will give a major relief to all the developers who are reeling under pressure of meeting the RERA guidelines amid the second wave of COVID pandemic. The demand became all the more pertinent, as the second wave of COVID jolted the recovery path of the sector that was gearing up in the second half of the year. Various factors such as inadequate availability of skilled labour, social distancing norms at construction sites, disruption in cash flows due to increased prices of raw material and overall liquidity crunch at the developers' ends, have impacted completion of hundreds of real estate projects across Maharashtra and in Mumbai. As the construction activities have suffered and will take a long time to restore the supply chain and re-engagement of machines and the workforce, this extended window permitted by the RERA to complete the projects will save the developers' fraternity from further damages and allow the much required breathing time."

Pritam Chivukula, Co-Founder & Director, Tridhaatu Realty, Hon. Secretary, CREDAI MCHI
"The construction activities were adversely affected due to the subsequent lockdowns. We thank the Housing Ministry for treating the pandemic as the Force Majeure as it was affecting the progress of the real estate projects around the country. Also the unavailability of labour and the rising cost of raw materials had added the woes for the real estate industry. The six months extension by Maha RERA would surely provide a much needed relief to the ailing real estate sector."

Dr. Alok Sheel, RBI Chair Professor in Macroeconomics, ICRIER- Indian Council for Research in International Economic Relations
"As widely expected, RBI has once again left policy rates unchanged. The ground situation has not materially changed since its last few monetary policy announcements. If anything, the dilemmas arising out of stagflation and the trilemma have been magnified. First, the inflation scenario, including RBI’s own expectations, has worsened even as growth and employment have still to recover.  Second, the threat of reversal in US Federal Reserve policy sooner rather than later has increased. Inflation has persistently exceeded the Federal Reserve’s forecasts, even as US growth has been robust. The rule of the thumb in such circumstances is to raise rates. Economists such as John B Taylor and the Wall Street Journal are calling the persistence of near zero policy rates under the current US Fed Chair as the most reckless since Arthur C Burns whom history  has  held accountable for igniting the great inflation of the 1970s. This puts the RBI somewhere between a rock and a hard space, transfixed like a deer in the headlights of a car at night, unable to decide whether to lower rates to revive investment, or raise them to target inflation and possible capital outflows. Despite high fiscal deficits, there is little that monetary policy can do in the current circumstances. The heavy lifting needs to be done by fiscal policy which has been conspicuous by its absence."
 
Indranil Pan, Chief Economist – YES Bank 
“RBI has attempted and managed to balance the contradicting objectives of managing inflation expectations while also communicating the need for sustained policy accommodation. Even as the inflation forecasts for the current FY have been raised, the communication continues to be that the hump in inflation is supply-led and thus ‘transitory’ wherein the demand side push for inflation is almost absent. This is the reason for RBI to have been able to see-through the current high inflation levels. RBI continues to highlight that any pre-emptive tightening can kill the nascent and hesitant recovery that is taking shape. In cognizance with an extremely uncertain growth climate, we think that the RBI will maintain its accommodative policy and not move on any form of tightening – be it on the rates side or on the liquidity side – till the end of the current FY.”

Anagha Deodhar – Chief Economist, ICICI Securities
“While the MPC’s rate action was along expected lines, the VRRR decision and one committee member voting against accommodative stance were early signs of normalisation. It upped inflation forecast for FY22 to 5.7%, a tad higher than our expectation and retained growth forecast at 9.5%. We expect the normalisation to continue with the RBI hiking reverse repo rate in two steps starting early next year. Commenting on growth outlook, the committee said accelerated pace of vaccination, expected pick up in government expenditure, the recently announced relief package by the government and easy financial conditions are expected to aid revival. On inflation, it said the current inflationary pressures are assessed to be driven by supply shocks and hence transitory. It also added that cutting fuel taxes can lessen the cost pressures.”

T Chitty Babu, Chairman and CEO, Akshaya Pvt Ltd
“The Reserve Bank’s accommodative stance will help maintain the higher demand seen in real estate in the last 2 months. With home loans interests still remaining at record low rates, real estate today is seeing a lot of pent-up demand coming to the fore, and the offtakes are poised to improve further in the next few months, leading up to the festive season.”
 

Kamal Khetan, Chairman and Managing Director, Sunteck Realty Ltd 
“The Reserve Bank’s accommodative stance is ideal to sustain a broader economic recovery. While the optimism about a steady economic recovery is gladdening, we believe that the recovery may need some more room from a good monetary-fiscal policy combination. The real estate industry is making recovery across many markets. With home loans still remaining at bottom levels, we believe the buying activity will soon be accelerated by those who have not used this favourable scenario to their advantage yet.”
 
George Alexander Muthoot, Managing Director at Muthoot Finance 
“We welcome RBI's unchanged view of accommodative stance, commitment to maintaining adequate liquidity in the system to fuel growth even as inflation has inched up and is likely to remain sticky near-term. Extended period of historically low interest rates will stimulate credit and economic growth. This benign environment is necessary and positive for supporting the broader economy, particularly the SMEs, small businesses, shopkeepers and traders who have been most impacted by the second COVID wave and experienced difficulty in restarting business activities with traditional banking channels. With business activities having resumed pan-India and vaccination coverage also progressing nicely across, we are seeing lifting of market sentiment and demand revival going into the upcoming festive season.”