Rate Cut To Improve Consumer Sentiment Feel Experts

New Delhi, October 4: Industry experts on Friday welcomed the RBI's move to cut its short term lending rate, repo rate by 25 basis points and said while it was in line with expectations, it will go a long way to improve consumer sentiment ahead of the festive season.

However they added that much depends on how efficiently banks transmit the benefits to their consumers.

They also hailed the central bank for being "well ahead of the curve" in unleashing monetary efficacy to combat the economic slowdown and said the consecutive rate cuts have been a big relief for the real estate sector.

Anuj Puri, Chairman of Anarock Property Consultants, said that with India’s GDP growing only by 5 per cent in the first quarter - the slowest pace in over six years, consumers are spending less on everything from FMCG to automobiles – and real estate. 

"The repo rate cut of 25 bps to 5.15 per cent is in line with expectations. Considering that the Aug 2019 CPI came in at 3.21 per cent - well below the medium-term target of 4 per cent - RBI had room for such a rate cut. It can probably go some way in improving consumer sentiments ahead of the festive season, which is a crucial quarter for the real estate sales," he said.

However, he added that much depends on how efficiently banks transmit the benefits to their home-buying borrowers. 

"An efficient transmission will lower the cost of capital not only for consumers but also for developers, making room for price revisions and further discounts. Some banks have agreed to link their lending rates to the Repo rates, but all major lending institutions need to follow suit," he said 

"Importantly, this rate cut comes close on the heels of the recent announcement of setting up a stress fund of Rs 20,000 crore to provide last-mile funding to projects stalled due to lack of capital. This fund needs to get into action soon and demonstrate meaningful results to improve the sentiments of industry stakeholders," he added.

K. Joseph Thomas, Head of Research, Emkay Wealth Management, added that the rate cut "perfectly complemented" other fiscal initiatives. 

"In conformity with this aggressive approach, RBI is likely to continue with its campaign for more rapid transmission of the benefits to credit users, through lower rates to a large extent linked to the base rate. There may be further cuts in the rate in the light of the GDP growth forecast being lowered form 6.90 per cent to 6.10 per cent for FY 20. We need to see more action from the government for a consumption-led recovery," he said.

Ramesh Nair, CEO & Country Head (India), JLL, said the fourth consecutive rate cut by the RBI was aimed at uplifting the growth trajectory of the Indian economy. He added that the real estate sector, too, was likely to witness accelerated sales owing to favorable policy reforms and the gradual transmission of rate cuts to end-consumers through lowering of mortgage rates.

"The consecutive rate cuts have been a succor for the real estate sector thereby making it the most opportune time for buying homes. This has been reflected in the continuous improvement in the residential sales that registered a 14 per cent Y-o-Y growth in sales during January- September 2019 as compared to the corresponding period in the previous year," he added.

The six-member Monetary Policy Committee of the Reserve Bank of India on Friday slashed the short term lending rate by 25 basis points in its fourth bimonthly policy review. It also kept its accommodative stance unchanged and said: "It is necessary to revive growth, while ensuring that inflation remains within the target."

The committee also said that it would maintain an “accommodative stance” as long as it is necessary to revive growth while ensuring that inflation remains within the target”. This leaves room for more rate cuts in future.