RBI Rate Cut A Welcome Step, Transmission To End Users Crucial; Experts

As the RBI lowered its key lending rate by 35 basis points on Wednesday in line with expectations, market experts welcomed the move and said while this would address liquidity crisis, its effectiveness will depend on the transmission of benefits of lower rates to end-users.

Ashok Mohanani, Chairperson, EKTA World, said the fourth cut in a row would guarantee affordability in terms of home loans and thus lowered EMI and lower GST. 

“It will definitely spur growth for the real estate sector specifically… Furthermore, we are also hopeful that the financial institutions will reduce the interest rates on construction finance. All this will give some sales momentum to real estate,” he further added. 

K. Joseph Thomas, Head Research, Emkay Wealth Management, said the RBI policy took cognizance of the need to bring down interest cost on liquidity and credit, to support the sluggish economic growth and to stimulate aggregate demand. 

“The success of this accommodative policy would depend entirely on the next level of its application, that is, the transmission of the lower rates to the ultimate borrowers.  The banks seem to be seized of this need and effective cascading of the benefits of lower base rate may happen over the next few months,” he said.

Romesh Tiwari, Head of Research, CapitalAim, said the move would have an immediate positive impact on real estate, two-wheeler, and consumer durable companies ahead of the festival season. However, he added that no change in Cash Reserve Ratio (CRR) was a bit disappointing.

“A rate cut of 35 basis point by RBI is along the unexpected line and will certainly help to increase liquidity. Increased limits for exposure limit to single NBFCs from lending bank up to 20% will help revive the lending activities of NBFCs… RBI acknowledged the slowdown in domestic as well as external demand and revised the Real GDP growth down to 6.9% from 7%,” he said.

Ramesh Nair, CEO and Country Head, JLL India, said the cumulative 110 bps rate cut in the last four policy reviews favours the Indian economy and the rate cut of 35 bps delivered by the RBI on Wednesday was likely to bring in a balance between growth and inflation. 

Nair said the real estate sector had already registered a 22% year-on-year growth in sales in the first six months of 2019 as compared to the corresponding period of last year and that the sector would gain momentum owing to favourable policy reforms.

“Stable real estate prices combined with steadily rising incomes have further uplifted the homebuyers’ sentiments in the last few quarters. However, the growth trajectory of the real estate sector ultimately depends on the successive transmission of rate cuts to the end consumers,” he added.

On the impact of the RBI’s move on the stock market, Mustafa Nadeem, CEO, Epic Research, said the markets in the short term may rejoice and see some recovery to upper levels of 11,100 – 11,200 as far as 10,750 holds.

Calling it a welcome move which was pretty much expected on the street, he said: “But it is important to note that we are in a secondary trend which is bearish and the bulls at present have the least chance of turning the trend quickly. Going forward the pressure at higher levels may continue to maintain its bearish momentum. It is now how global markets move and what are the cues there.”