Industry leaders react to RBI's monetary policy

The RBI, in its final bi-monthly monetary policy review for FY19, has decided to cut the repo rate by 25bps.

Feb 07, 2019 11:02 IST India Infoline News Service

The Reserve Bank of India has cut the repo rate by 25bps in its sixth bi-monthly monetary policy statement for 2018-19. The MPC is headed by RBI Governor Shaktikanta Das. In its last bi-monthly monetary policy, the bank had kept the repo rate unchanged at 6.5% and the reverse repo rate at 6.25%.

This is how the industry reacted to the RBI’s final bi-monthly monetary policy review for FY19.

R. Sivakumar, Head - Fixed income, Axis Mutual Fund
“The RBI in its assessment of the macro economy, highlighted inflation and growth as key reasons for its change in stance. On the macro-economic front, the recently released CSO advance estimates for 2018-19 showed GDP growth at 7.2% - the same level as in 2017-18 (first revised estimates). While capacity utilization improved, consumption demand saw moderation. Domestic high frequency numbers indicated a slowdown in consumption especially across discretionary spending and rural consumption. Global growth also raised concerns for the RBI on future growth projections given the sharp deceleration in Chinese growth, weakening US, Eurozone & Japanese growth prospects.
 
Inflation estimates have been marked down given higher than expected pressures on food and fuel inflation. Given the weaker sowing pattern of the Rabi crop, the RBI expects some recovery of food inflation in H1 2019. Nonfood inflation continues to remain elevated but within manageable limits. In our opinion, should the inflation estimates stay on track, the RBI may likely see further room for rate cuts. The dovish policy stance by the RBI is a clear indication that monetary policy actions will be used to support growth given the current inflation scenario.
 
We do not expect long bonds to offer significant investment opportunities given the uncertainty around crude prices, the OMO calendar for the remainder of the year and possible front loading of debt issuances in the next financial year. In comparison, short bonds offer significant opportunities given the dovish stance by the RBI and willingness on the part of the RBI cut rates further, should the inflation estimates hold good in the coming quarters. Corporate bonds in the 1-3-year space currently trade at a premium of 150-175 bps over the operative rate which we believe offers significant opportunities and thus prefer this space.’’

Shubhada Rao, Chief Economist, YES Bank
The Reserve Bank of India’s (RBI) action went beyond our anticipated change of stance to neutral, as it delivered a 25 bps cut in repo rate. With FYTD19 average CPI inflation at 3.8% and having remained below 4.0% target for 5 consecutive months, the RBI appears to have drawn comfort not only from the benign current inflation levels, but also the forward-looking inflation trajectory and the sharp 130 bps decline in 1Y ahead household inflation expectations. The comfort on inflation also opened up the space to support growth.

Looking ahead at 2019, we expect core inflation pressures to remain persistent, amidst a fiscal led demand push. However, momentum in food and fuel prices will be key, given their strong influence on headline CPI inflation. We expect FY20 CPI inflation outturn to be somewhat higher than RBI’s estimate, so the bar for future rate cuts will be high, lest there is a dramatic downside either owing to a correction in global crude prices from current levels and/or a persistence of soft food price momentum in FY20. Hence, we retain our call of a prolonged pause with a neutral stance for now.

V.S. Parthasarathy, Group CFO, Mahindra & Mahindra Ltd.
Inflation at record lows, stable crude oil prices, a dovish Fed, slowing global growth – the stars were perfectly aligned for the RBI to soften its stance. Real interest rates in the economy are at an almost all-time high, leading to a higher cost of financing. Demand has also come under pressure due to the reduced lending ability of the NBFC sector. Further, the current turmoil in the Indian financial markets needed a dose of reassurance from regulators. Governor Das’s first policy has rightly given an emphatic rate cut & changed the RBI’s stance from “calibrated tightening” to “neutral” to infuse “JOSH”, said the fragile financial sector, and spur consumer demand. Measures such as an amendment in risk weights for banks for NBFC lending, permitting ECBs for cases under IBC, and increase in limits for collateral–free agricultural loans, will ease the liquidity scarcity felt by certain segments, which is the need of the hour. These measures along with the various other measures taken in the Interim Budget will increase the buoyancy in the economy. The focus on growth drivers will put India firmly in the drivers’ seat.

B Prasanna – Head Global Markets Group, ICICI Bank
“The Monetary Policy Committee (MPC) delivered a dovish policy, both in rate action and in stance, while sounding sanguine on low inflation expectations. The sharp lowering of inflation forecasts could enable further policy easing in April. In a significant departure from previous commentaries, there was an emphasis on the need to support growth if inflation objectives are achieved and the MPC noted that the slack in the economy is rising.”

“The RBI has also introduced some welcome regulatory changes. The list includes withdrawal of concentration limits in corporate bonds that will promote participation of Foreign Portfolio Investors, rationalization of interest rate derivatives guidelines which will boost depth and liquidity of derivative markets, and the task force on offshore rupee markets that will foster greater participation in Indian assets. The change in risk-weighting of rated exposure to NBFCs, will help strong NBFCs to get credit thereby easing some of the strain being felt currently.”

Foram Parekh, Fundamental Analyst – Equity, Indiabulls Ventures Ltd
“RBI has cut down interest rates in its bi-monthly monetary policy by 25 bps and settled the repo rate at 6.25% from 6.5% earlier. The slash in repo rate has been positive for the bond market as the yields came down to 7.49% from yesterday’s closing of 7.56%. The RBI governor also lowered the inflation target and toned down its stance from tightening to neutral which indicates further cut down in interest rates. The bond markets were not pricing in the possibility of an immediate rate cut and as a result, G-Sec yields have dropped by ~5 bps following the policy announcement. While higher bond supply is likely to weigh on markets, the rate cut does provide some relief and the previous 10Y benchmark is likely to trade in a range of 7.35-7.50% in the near term”.

T Chitty Babu, Chairman and CEO, Akshaya Pvt Ltd
We welcome the RBI’s decision to cut repo rate by 25 basis points to 6.25%. It is indeed a positive step to revive the demand in the real estate sector. It will allow the banks to pass the rate cut benefits on home and other loans to the customers. Coupled with the announcements made in the recent Interim Budget, this will help boost the real estate sector across the country and improve the home buyer sentiments. The step will increase lending as the EMIs will become cheaper and the real estate developers can witness a steady growth in the sales of homes across different segments in the coming quarter.

Dr. Sunil Kumar Sinha, Principal Economist, India Ratings and Research (Fitch Group)
India Ratings and Research (ind-Ra) had expected RBI to change its policy stance from calibrated tightening to neutral but keep policy rate unchanged in its Sixth Bi-monthly Monetary Policy Statement, 2018-19. However, RBI besides changing its policy stance has also cut the repo rate by 25 bp. RBI expects both food and fuel inflation to remain benign and thus revised its headline inflation forecast to 2.8% for Q4FY19, 3.2-3.4% for H1 FY20 and 3.9% for Q3FY20. Also its survey shows a moderation in the inflationary expectation of producers/ households on input/output prices.

Although RBI admits to the inflationary threat posed by (i) health and education inflation, (ii) volatility in vegetable/global crude prices, (iii) fickleness of global financial markets, (iv) global trade tension and (v) pressure on aggregate demand due to several proposals in FY20 budget it  believes they are unlikely to play out in the near term. In Ind-Ra’s view this has prompted RBI to go for a repo rate cut along with change in policy stance.

Ind-Ra believes with this rate; RBI may also try to send a signal that its actions are no longer behind the curve. Ind-Ra believes the scope for further rate cut are very limited in view of expansionary fiscal stance of the union government/ the likely stance of the state governments.  Moreover, much would depend on 2019 monsoon outcome which has been assumed to be normal by RBI. Thus Ind-Ra expects only one more rate cut in FY20.

Umesh Revankar, MD and CEO - Shriram Transport Finance Ltd
“The 25 bps cut and other measures by the RBI is a positive step. As the inflation is under control and below 3%, we expected the central bank to reduce the repo rate. A relief on the cost of funds is awaited eagerly by the SMEs as it helps them with reduced borrowing cost and offers much needed impetus, thereby improving their financial health. RBI’s current rate cut is indicating that in the next fiscal, if the inflation remains below 3% and oil prices remain stable, we expect rates to further reduce by ~25 bps.”  

Amar Ambani, President & Head of Research, YES Securities
“With an extremely benign inflation reading and limited risks to upside and with the INR having stabilized, it was it was clear to us that the time is right to provide the much-needed support to economic growth. This could also be gauged from the RBI policy announcement, where members unanimously voted in favour of changing their policy stance to Neutral from that of Calibrated Tightening. To our mind, it was only a matter of whether rates were cut in today’s meeting or the during the next policy meet of RBI. In our recent strategy note post Union Budget, we opined that while the Central Bank will take cognizance of the budgeted pause in the fiscal deficit glide, it will not hold back from cutting the Repo rate. The RBI chose to cut Repo by 25 basis points in today’s policy itself, with four members (including the Governor) favouring a rate cut while two members opted for status quo on rates. We welcome this decision and believe that the present situation opens up doors for more rate cut action in the year 2019.”

George Alexander Muthoot, MD - Muthoot Finance Limited on Monetary Policy
“The 25bps cut is in line with our expectation which will aid the RBI to boost the liquidity in the system. The overall investment demand and the credit environment of the economy will pick up. We expect further rate cuts to come our way if the inflationary pressures are well under control.”

“At the first policy meeting under new RBI governor the MPC surprisingly voted for cutting policy rates by 25bps (4-2) and change in stance to neutral (6-0). Market expectations were more of dovish and rate cut in future. Bond yields have eased by 5-10bps to the dovish outcome. The MPC now projects the CPI inflation in H1 2020 between 3.2-3.4% and 3.9% in Q3 versus 4% expectations in the previous policy. The recent drop in food inflation and lower crude oil prices led the committee to ease rates and change the stance.”

On growth, MPC believes the output gap has opened up slightly as recent growth prints have been lower than expected. MPC still maintains the projections of GDP growth at 7.4% for FY 2020 with risks evenly balanced. The bond market has seen a drop in yields by around 10bps due to surprised front loading of a rate cut. The inflation projections close to 3.9% is also higher than market expectations of 4.25%. Markets will start pricing in the possibility of one more rate cut in next 6 months if oil prices remain low. The benchmark 10-year bond will trade in the range of 7.20-7.35% till the announcement of the borrowing calendar for FY20.”

Kunal Shah, CFA, Fund Manager - Debt, Kotak Mahindra Life Insurance Co.Ltd.
“At the first policy meeting under new RBI governor the MPC surprisingly voted for cutting policy rates by 25bps (4-2) and change in stance to neutral (6-0). Market expectations were more of dovish and rate cut in future. Bond yields have eased by 5-10bps to the dovish outcome. The MPC now projects the CPI inflation in H1 2020 between 3.2-3.4% and 3.9% in Q3 versus 4% expectations in the previous policy. The recent drop in food inflation and lower crude oil prices led the committee to ease rates and change the stance.”

On growth, MPC believes the output gap has opened up slightly as recent growth prints have been lower than expected. MPC still maintains the projections of GDP growth at 7.4% for FY 2020 with risks evenly balanced.  The bond market has seen a drop in yields by around 10bps due to surprised front loading of a rate cut. The inflation projections close to 3.9% is also higher than market expectations of 4.25%. Markets will start pricing in the possibility of one more rate cut in next 6 months if oil prices remain low. The benchmark 10-year bond will trade in the range of 7.20-7.35% till the announcement of the borrowing calendar for FY 20.”

Mayur Shah, Managing Director, Marathon group
“The apex bank’s decision to reduce repo rate by 25 basis points augurs well for the realty sector. The RBI’s move comes at an appropriate time and is aimed at supporting growth amidst a scenario where inflation seems to be coming under control. We expect banks to pass on the benefits to customers. The realty industry clearly needs policy interventions to improve the liquidity in the sector. The amalgamation of lower interest rates coupled with various consumption-boosting measures initiated by the government in the just-announced interim budget will hopefully help home buyers. Easing procedural bottlenecks, speedier project clearances and reviving credit flows for realty industry are critical for the economy.”

Dharmesh Kant, Head - Retail Research, IndiaNivesh
Rate cut of 25 basis points an Act of fine balance between maintaining real income & boosting economic growth. Benign inflation trajectory & low private capex were key enablers for rate cut good for mid & small cap companies. Double bonanza for NBFC’s low cost of funds & boost in consumption on account of low inflation/ high disposal income. What Budget 2019 missed for corporates has been largely compensated by Monetary policy change in stance to neutral will bring stability to financial environment.

Manoj Gaur, MD, Gaurs Group and Vice President, CREDAI National
“With RBI reducing the repo rate after keeping it unchanged since last two monetary policy reviews, it shows a softer stand towards lending. I am sure Bank’s would surely reduce the lending rates, though marginally, which can boost the sentiments in the market. Also with the push which the government showed towards affordable segment in the budget 2019 where the income tax rebate was extended to 5 lakhs, I am sure end users would now be more motivated, to purchase their homes, post the repo rate cut.”

Pradeep Aggarwal, Co-Founder & Chairman, Signature Global and Chairman, National Council on Affordable Housing, ASSOCHAM
The RBI policy cut rates will not only be a positive outcome for the Real Estate sector, but also for the eligible new home borrowers who can take advantage of the subsidies scheme under PMAY (Pradhan Mantri Awas Yojana). This move will be a big boost for affordable housing and help for first time home buyers also the rate cut brings fetches confidence for the market as this will make availability of more money at the banks thereby lowering the EMI burdens. And to add icing to the cake, the government has also extended the time-limit of the PMAY scheme to March 31, 2020 for middle-income group buyers.

Amit Raheja, MD, Wealth Clinic
The 25 basis point policy rate cut is anticipated to rejuvenate the real estate market as this step will give assistance in lowering the marginal cost of fund based lending rates (MCLR) thereby bringing in more availability of money at the banks. The RBI Policy rate cut will not only benefit the developers, but also will favour the homebuyers by lowering the EMI burden.

Deepak Kapoor, Director, Gulshan Homz & Former, President, CREDAI Western UP
This is a surprisingly good development and indeed a step in the right direction. The repo rate that was left unchanged since October 2018 has now been cut by 25 bps, thus giving a sigh of relief to the real estate sector.  It will help to ease the pressure off the market by attracting more number of buyers to invest in the real estate sector.

Gaurav Gupta, President, CREDAI Ghaziabad and Director, SG Estates
A constructive progression for the real estate sector is counted on with the RBI policy rate cut by 25 basis points. This is surely going to boost the market as this is the first time in FY 2018-19 that the rates have been cut by 25 bps changing the repo rate at 6.25 % and reserve repo rate at 6%. The marginal cost of fund based lending rates is expected to be low which in turn infers the availability of more money the banks thereby benefiting both the end-users and the developers.

Nipun Gaba, Senior Vice President, Fairwealth Group
This is a good development, since easing interest rate will help revive health of businesses like Real-Estate which are highly sensitive to interest rate movements, but while it is indeed a step in the right direction, 25 basis points cut may not be enough to spur the investment cycle, there is definitely more required, to improve the sentiment towards investments in the country and will boost the mid segment housing sales.

Dhiraj Jain, Director, Mahagun Group
This is really good news especially for home loan borrowers with the RBI bringing down the key policy rate by 25 bps in its monetary policy review, signalling lower interest rates. With lower repo rates banks would be able to set the direction and reduce the level of interest rates, which eventually witness the increase of demand for homes in real estate sector.

Prateek Mittal, Executive Director, Sushma Group
The real estate segment is expected to pick up with RBI monetary policy's rate cut. The repo rate cut of 25 bases points will not only benefit the developers but will also favour the homebuyers. More money available in banks at a lower cost will result in increased purchasing power as there will be a lower EMI burden on the buyers. It will also lighten the liquidity crunch and lower the cost of finance for the developers. Such positive announcement by the RBI was much needed for the realty sector to take off.

LC Mittal, Director, Motia Group
After the Interim budget 2019, RBI monetary has come up with even greater relief to the real estate sector. The repo rate which was kept stagnant from October 2018, has now been reduced by 25 basis points which will ease the pressure off the market and accelerate the investment cycle. Post the implementation of GST & RERA this rate cut is going to help the realty sector flourish.

Kushagr Ansal, Director, Ansal Housing
Since last one & half year on every policy review we were expecting the cut in repo rate but finally, the government reduced repo rate by 25 basis point after the interim budget. Post implementation of GST & RERA real estate sector is on the revival path and decreased repo rate will be additional support for the buyers.

Ashok Gupta, CMD, Ajnara India
Developers are working hard to bring real estate back on track and Government is also supporting us in every possible way. We believe that the decision to reduce a repo rate by 25 basis point will prove beneficial from a consumption and lending perspective, thereby boosting economic growth. . This was a much awaited announcement for both developers and buyers.

Rajesh Goel, MD, RG Group
With the cut in Policy rates by 25 basis points, there are aspirations for the Real Estate Sector to pick up their businesses in the market. This step will surely assist in keeping the marginal cost of fund based lending rates (MCLR) low which means there will be more money available at the banks at a much lesser cost lowering the EMI burden. Though this is a positive progress for the market, but still it needs more to stimulate the investments in the country.

Vikas Bhasin, CMD, Saya Group
It’s a welcome step and was long awaited move this will help to boost the sentiments in the real estate sector. We sincerely hope that both Finance Ministry as well as the RBI asks all the Banks to transfer the benefits to the end consumer, else this move will severely stop short of benefiting the consumer and only help in buffering the bottom lines of the bank.

Dhiraj Bora, General Manager, Corporate Communication, Paramount Group
MPC has changed its stance to neutral and apex bank finally cut interest rates, in line with what the sector was expecting. Now the repo rates are brought down by 25 basis points to 6 per cent from 6.25 per cent, we are assuming the banks would pass on the rate cut in a similar direction. From the point of view of the real estate sector, the lowered interest rates on home loan EMI is likely to give another sign of relief after Interim budget.

Sagar Saxena, Project Head, Spectrum Metro
The 25 basis point policy rate cut is anticipated to rejuvenate the real estate market as this step will give assistance in lowering the marginal cost of fund based lending rates (MCLR) thereby bringing in more availability of money at the banks. The RBI Policy rate cut will not only benefit the developers, but also will favour the homebuyers by lowering the EMI burden.

Puneet Pal, Deputy Head-Fixed Income, DHFL Pramerica Mutual Fund
The MPC has delivered a Dovish 25 bps rate cut today, lowering the benchmark repo rate to 6.25% from 6.50%. The decision to cut rates today, was a bit of a surprise in terms of the timing. The MPC has reduced its Inflation target by 60 bps for H1:2019-20 to 3.2-3.4% from 3.8-4.2% earlier. The CPI projection for Q3 2019-20 is at 3.9%. The MPC has taken cognisance of the slowdown in Domestic and Global growth outlook and the continuing benign Inflation outlook. The tone of the Policy is distinctly dovish and we pencil in another rate cut in the next policy meeting in April 2019.

We expect the sovereign yield curve to steepen as today's rate cut and expectations of a further rate cut will support the short end (1-4yr) of the curve while the Bond Demand/Supply dynamics are likely to deteriorate going ahead negating a big move down in Long Term Yields. We expect the credit spreads to remain elevated as the current risk aversion continues to persist over the next 3-4 months.

Mr Ravindra Sudhalkar, ED & CEO of Reliance Home Finance, Co-Chairman of ASSOCHAM National Council Committee on Real Estate, Housing & Urban development
“The Reserve Bank of India’s decision of a 25 basis point (bps) cut in repo rate is a welcome move. The market has been liquidity thirsty for quite some time and a rate cut may ease the liquidity situation. We are hopeful that the banks will pass on the cuts, which would help to bring down the cost of funds for NBFCs/ HFCs,” says Ravindra Sudhalkar, ED & CEO, Reliance Home Finance. “Importantly, the rated exposures of banks to all NBFCs will be risk-weighted as per the credit rating assigned to the respective NBFC. This will allow banks to lend more to well-rated NBFCs thereby easing the liquidity scenario.”

V P Nandakumar, MD & CEO, Manappuram Finance
“The rate cut comes as a much needed shot in the arm for India’s NBFCs. While the cut in policy rate will benefit business and industry across the board, the proposal to reduce risk weights on bank exposure to better rated NBFCs will help reduce their cost of funds even further. We welcome this measure by the RBI as we believe it has brightened the outlook for India’s NBFC sector”.

B.M. Gupta, Whole Time Director, Tourism Finance Corporation of India
“The cut in the repo rate will help ease the liquidity concern in the financial system. With improvement in borrowing rates, financial institutions can either improve their spread or enhance the client portfolio by passing on the benefit to the consumer. We feel the effect of this will not only stimulate credit growth but will also aid profitability of financial institutions.”

Prashant Solomon, Managing Director, Chintels India Pvt. Ltd and Hon. Treasurer, CREDAI NCR and Convenor of CREDAI National (Media and PR Committee)
“The Reserve Bank of India's decision to slash the repo rate by 25 basis point to 6.25 percent is a welcome move for the real estate sector and will have a positive effect on the sentiments of homebuyers. Home loan interest rates had increased by 5-7 percent over the last one year. The new rate cut, announced for the first time since 2017, will pave the way for cheaper home loans for home buyers as well as increase liquidity in the banking system. Together with the benefits announced for the real estate sector in the Interim Budget 2019, one can expect this new rate cut to bring about a growth in demand for the residential property sector. All in all, it a positive and a much needed move for the Indian real estate industry and will bring much joy to the real estate developers as well as property investors.”

Shivam Sinha, Founder & CEO, Indiassetz
“The decision of the Reserve Bank of India (RBI) to cut the repo rate by 25 base points, bringing it down from 6.50 to 6.25 is a welcome move for the Real Estate sector and was long overdue.

Last one year has been challenging for the sector with RBI having increased the repo rate by 50 base points that led to sky rocketing Home Loan rates and increase in the associated costs furthermore. It not only led to some of the big names (builders) falling in the category of defaulters, but also made the middle class buyer more weary of putting his money into the Real Estate thus, leaving a significant percentage of under construction and constructed homes unsold. While this cannot be attributed as the only reason for the huge supply-demand gap and the other fallouts but it sure is a key influencer for the price sensitive Realty market.

The recent changes proposed in the interim Budget for the Real Estate Sector and now this announcement by the Reserve Bank of India (RBI) would aid some relief to the sentiments of a common buyer and the builders, giving hope of a promising fiscal year ahead for the Real Estate sector.”

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