NEW DELHI: The Reserve Bank of India on Wednesday kept key interest rates unchanged at 4% for the ninth straight policy meeting and maintained an accommodative stance to revive and sustain growth and to mitigate the impact of COVID-19 on the economy.
Time to buy a home?
The bank has kept the Repo rate – the rate at which the RBI lends funds to banks — unchanged at four per cent and the reverse repo rate — the rate at which RBI borrows from banks – at 3.35 per cent. The six-member panel voted 5-1 to retain the accommodative policy. This decision to maintain status quo means home buyers would continue to reap the benefits of a record low interest rate regime.
"With reasonable prices, lower interest rates and sufficient option to choose from, this is perhaps the best time to buy a dream home and we are hopeful of witnessing an uptick in demand," said Suren Goel, Partner, RPS Group.
The lower home loan interest rates would help the real estate sector, particularly in tier 2 & 3 cities. " RBI's decision will help reinstate confidence and further access to affordable home loans and help foster housing demand. It has also helped the sector to regain its strength as well as stay afloat during these unprecedented times. 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," said Ramani Sastri - Chairman & MD, Sterling Developers Pvt. Ltd.
Lindsay Bernard Rodrigues, CEO & Co-Founder, The Bennet and Bernard Company said, "With the positive growth of the economy over the last few months, the RBI leaving the repo rate unchanged means home buyers would continue to reap the benefits of a record low interest rate regime. For any investor, it’s a time of great opportunity and for the end-customer. It’s a good time to buy. People are looking for own homes and are purchasing second homes in the context of the pandemic as they would have a secure and safe home and would also be a good alternative to their primary abode."
What's the rationale behind the status quo?
Given the slack in the economy and the ongoing catching-up of activity, especially of private consumption, which is still below its pre-pandemic levels, continued policy support is warranted for a durable and broad-based recovery, noted the central bank.
“Overall, the recovery that had been interrupted by the second wave of the pandemic is regaining traction, but it is not yet strong enough to be self-sustaining and durable. This underscores the vital importance of continued policy support. Downside risks to the outlook have risen with the emergence of Omicron and renewed surges of COVID-19 infections in a number of countries,” says RBI Governor Shaktikanta Das.
The MPC has retained the growth target at 9.5 per cent for FY2022.
What about inflation?
The RBI also retained retail or consumer price inflation projection at 5.3 per cent in 2021-22.
"The flare-up in vegetables prices due to heavy rains in October and November is likely to reverse with the winter arrivals. Rabi sowing is progressing well and is set to exceed last year’s acreage. Recent pro-active supply side interventions by the Government continue to restrain the pass-through of elevated international edible oil prices to domestic retail inflation. Crude prices have seen a significant correction in recent period," the central bank said in a statement.
Digital payments need to be made for affordable:
Due to concerns over the various charges incurred by customers for payments through credit cards, debit cards, prepaid payment instruments (cards and wallets), Unified Payments Interface (UPI) and the like, the RBI has proposed to release a discussion paper on various charges in the payment system to have a holistic view of the issues involved and possible approaches to mitigating the concerns so as to make digital transactions more affordable.
UPI limit increased for investing in IPOs
RBI acknowledged that UPI is the single largest retail payment system in the country in terms of volume of transactions, indicating its wide acceptance, particularly for small value payments. The central bank proposed to (i) launch UPI-based payment products for feature phone users, leveraging on innovative products from the RBI’s Regulatory Sandbox on Retail Payments; (ii) make the process flow for small value transactions simpler through a mechanism of ‘on-device’ wallet in UPI applications; and (iii) enhance the transaction limit for payments through UPI for the Retail Direct Scheme for investment in G-secs and Initial Public Offering (IPO) applications from Rs 2 lakh to Rs 5 lakh.
"The RBI by proposing an increase Unified Payment Interface (UPI) transaction limit for investing in IPOs from its current limit of Rs 2 lakh to Rs 5 lakh is an important step in widening the primary market investor base. Till date, the facility was available mainly to retail investors, who are categorized as those who invest up to Rs 2 lakh in an IPO. By increasing the limit, the market is now open to High Net Worth Individuals (HNIs). National Payments Corporation of India (NPCI), the umbrella organization for retail payments, recently reported that over 7.6 million mandates were created in November compared with just 1.14 million in the preceding month. RBI's move will help increase these numbers further," said Vijay Singhania, Chairman of TradeSmart, an NSE registered leading tech enabled discount brokerage firm.
REACTIONS: RBI policy is good news for home loan borrowers
The unchanged repo rates will help maintain status quo on the prevailing low interest rate regime for some more time which works well for all home loan borrowers as the environment of affordability will continue, said Anuj Puri, Chairman of property consulting firm Anarock firm. This means that the home loan interest rate will remain at the current level of sub 7% per annum.
“The RBI’s decision to maintain the repo and reverse repo rates steady at 4% and 3.35% has come at a time where economies across the globe prepare to deal with the uncertainties owing to COVID-19’s Omicron variant. While keeping an eye on inflation levels, the RBI’s focus remains on ensuring durable and self-sustaining economic growth, thereby underscoring the importance of policy support. Also, on the back of positive domestic indicators such as improving consumer demand, revival in investment activity and range bound inflation, the central bank retained its previous projections of GDP growth at 9.5% in FY 2021-22, despite certain downside risks. Hence, we are optimistic that this steady stance would augur well for home loan borrowers and India’s real estate market," said Anshuman Magazine, Chairman & CEO, India, South-East Asia, Middle East & Africa, CBRE.
"The low interest rate regime has been instrumental in reviving the real estate sector in the last 6 quarters through their systematic approach. RBI’s efforts, along with other demand stimulant measures, have helped revive demand that had been languishing for close to 7 years prior to 2020. The continuance of the accommodative stance will help further the cause for the sectorm," said Shishir Baijal, Chairman & Managing Director, Knight Frank India.
Better digital adoption:
"RBI has reinstated its increase in acceptance for digital payments by taking a concerted view on various aspects of facilitating better digital adoption, a definite way forward for the financial inclusion industry in India”, said Manoj Nambiar, Managing Director, Arohan Financial Services.
