The RBI measures are in line with market expectations and in fact
market is relieved that the Repo Rate increase is not higher than the 25 basis
points announced. The measures to cut MSF by 25 basis points is to ensure that
cost of liquidity is kept lower. In that sense with the change in regime at
RBI, RBI is now looking at growth imperatives as well. Already with 0.5% of
NDTL as overnight repo eligibility, another 0.5% of NDTL as export refinance
and the now announced increase of term repo for 7 to 14 days eligibility (from
0.25% to 0.50% of NDTL), RBI is ensuring sufficient liquidity particularly
during current festival season and as we enter the busy season.
With wholesale inflation being under 7% and consumer inflation
stubbornly ay 9% plus levels with food inflation at decades high of 18% plus!
there is no way interest rates are slated to come down, notwithstanding
infusion of 14,000 crore plus infusion as capital in PSU banks.
One only hopes that the current somewhat benign crude oil prices,
better control on CAD continues so that the external Rupee value is
stable. All in all credit/funds flow to agri and SME sectors has to be ensured
as one sees some signs of revival in services sector and good growth in
agricultural sector.
The Reserve Bank of India’s move to revise the repo rate upwards
by 25bps has not been received well by the real estate development fraternity,
which hoped for a rate cut or a status quo in a market scenario where banks and
financial institutions have already started increasing lending rates for home
loans. Given the festive season is traditionally the period where the real
estate sales are driven up by sentiment, this revision is not welcome; reviewed
objectively though, the decision of the Central Bank is justified given its
primary focus on taming inflation. In the short term with financial
institutions revising interest rates and on the back of already high real
estate costs, demand for real estate will continue to be depressed.
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