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09 Dec 2018, Edition - 1244, Sunday

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Businesswire

RBI’s Stance Endorses Government’s Assertions: Harvinder Sikka

by businesswireindia.com

Business Wire India
RBI credit policy was in tandem with market expectations in terms of maintaining status quo on policy rates. However, the standout factor which made the policy review eventful was the sharp reduction in inflation forecast for FY 2018 – 19.
 
Though the stance on policy rate was as anticipated by everyone because of the government’s assertion that both the fiscal deficit and revenue shortfall in FY 2018 – 19 would be lower than the revised budget estimates and the market borrowing would only be ₹ 2.88 lakh crore in the first half of the financial year 2018 – 19 when compared to the previous financial year.
 
Falling food inflation and the stabilising Consumer Price Index (CPI) was hinting at lower inflation as far as first half of FY 2018 – 19 is concerned but the way RBI has brought down the forecast of inflation for the full financial year 2018 – 19, there are clear hints that there would be a long pause in RBI policy rate and there would not be any raise in the key rates at least for this calendar year.
 
However, there are three key uncertainties which remain the focal point of all the discussions – fiscal deficit in FY 2018 – 19, Food Inflation which might happen in the second half of the financial year and the pace of normalization of US monetary policy. But today’s RBI policy should surely soothe the nerves of investors across the Indian economy in an immediate sense.
 
Talking in particular about the real estate sector, reduction in lending rate allows the sentiments in real estate to improve as the net cost on the buyer for the housing unit gets decreased but with the market inflation not coming below the medium-term target and potential trade wars among more advanced economies of the world, the apex bank would have been compelled to maintain the status quo. Even though the apex bank has kept the rates unchanged, but we still believe that there is room for financial institutions to cut down on their lending rates for their customers.
 
Also, as we have just begun with the financial year, a rate cut today would have allowed potential buyers to plan better for their investments in the property market for the current financial year. A rate cut of 25 bps could have helped ease the pressure off the market which has been balancing itself for over 6 months now. However, with no change offered in this monetary policy review, we expect the market to run with only a static demand in the short run.
Source: Businesswire
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