Amid uncertainty over the surge in coronavirus cases, the Reserve Bank of India(RBI) is likely to perpetuate the status quo at its forthcoming monetary policy. The RBI is looking to hold all his action plans for some time. The spur growth is perceiving to be a significant talking point in the upcoming meeting of the RBI. RBI has been the directory of most banking decisions in India, and the other banking authorities have to abide by its guidelines.
According to the experts, RBI is to stick with the accommodate monetary policy and wait for the opportune time till the forthcoming action. The primary objective of the RBI has always been to contain inflation, along with improvising the monetary policies from time to time. The announcement of the fiscal action plans has got upheld amid the surge of the pandemic. RBI ensures that in the purview of pushing the growth upwards. It does not sacrifice the paramount objectives of the Indian monetary policies.
WHAT WAS THE EMPHASIS OF THE MEETING
Concrete debates have been held in the RBI boardroom to discuss the amendments in the current bank rates. The meetings led by the RBI governor Shantikanta Das have been paramount in the decision-making. After the three-day discussions of the Monetary Policy Committee headed by the RBI governor, the Governor announced that the bi-monthly monetary policy would be in action very soon.
On February 5, 2020, when the last meeting of the MPC got held, the central bank had kept the key interest rates uninterrupted citing, inflationary concerns. RBI has constantly been amending the bank rates to ease the problems of the customers as well as the public banks. Since the pandemic, the ratios have fallen significantly to avail some monetary benefits to the people.
THE DUN & BRADSTREET REPORT FRAMES THE FACTS ABOUT THE RBI MONETARY POLICY
In a recent report, Dun& Bradstreet said the resurgence of the second wave of the coronavirus would have drastic impacts on the road to recovery. The restrictions imposed by several states will obtrude further uncertainty and hurdles in the revival of industrial production.
Dun& Bradstreet Global Chief Economist Arun Singh claims that the long-term yields are hardening, leading to the rise in borrowing costs. “Despite the rising inflationary pressures, we expect the RBI to keep the policy repo rate unchanged in the forthcoming monetary policy review because of the uncertainty posed by the sharp rise in Covid-19 cases,” he said.
Previous scenario concerning repo rates
The rising concern of the coronavirus has made the banking system overthink whether to curb the repo rates. Or to go all-in with the new monetary policy. The RBI has previously confined to change its off-shore policy to boost the demand by cutting interest rates to a historic low. The RBI has lowered its policy rates by a cumulative 110 basis points since March 2020. It intended to enable the economy to withstand the shock of the novel coronavirus disease.
According to the poll review, RBI looks set to hold its current repo rate at 4 percent till March 2023. Its benchmark lending rate is unchanged until the hastings of the epidemic improves. While evaluating their theories, most economists expected the monetary policy committee to vote in favor of the status quo on February 5. Finally, the MPC upended the policy yesterday.
The benchmark policy is the first action plan undertaken by the RBI since Finance Minister Nirmala Sitharaman presented the Union Budget 2021-22 on February 1, 2021. At that time, the RBI officials asserted that the decision to keep policy rates unchanged signals the government’s vision on fueling consumption.
The RBI officials stood firm in making the government’s plans successful in uplifting the consumer penetration in the markets. While announcing the MPC’s decision virtually, the RBI governor Shantikanta Das stated that amelioration signs were visible in India’s housing sector. He asserted that the economic recovery in India needs support through monetary policies. As per the RBI, it was the foremost reason that the RBI has continued its accommodative stance.
The inflation rates have been high due to enormous prices in the markets. It possesses a threatening concern for the Indian citizens. The RBI affirms that the primitive function is to preserve balancing liquidity in the financial system. While the nations’ agenda gets driven by many more impactful factors, the constant repo rates policy would ease the chunk of their problems.
THE RESPONSE OF THE REAL ESTATE DEVELOPERS IN THE WHOLE SYNOPSIS
Although the RBI minimized the repo rates to a historic low, the real estate developers have drawn their disappointment on the whole scenario. The RBI’s decision to withstand the same policies has not gone well in the markets as they felt more conservative actions need implementation. Kaushal Agarwal, chairman of the Guardians Real Estates Advisor, reverberates his mortification in the matter.
He said that the recent budget, which got announced on February 1, 2021, had limited benefits for the real estate developers. The sector was hoping for a further reduction in the repo rates. Moreover, the reduction in rates could have palliated the stringent growth in the precinct since the pandemic. The subsequent lockdowns made progress complicated, which arises the need for cash flow within the economy.
The RBI announcements have been very much on the expected lines, even though no measures got undertaken for real estate and home buyers, particularly in the recently announced budget. It would have been a relief if some benefit were extended to the sector today, as the experts awaited it. Amit Modi, director, ABA Corp, and president-elect CREDAI-western UP, said in a press conference.
Did the previous hearing of the MPC had any influence on reducing the borrowing costs?
The apex bank is instrumental for the government authorities in providing them the conventional and non-conventional support. RBI regulates the procurement of every housing sector and the government-related finances. However, the measures propounded during the coronavirus proved to be well short of the standards expected by economists around India.
According to the research authored by Rajeshwari Sengupta of the RBI-funded Indira Gandhi Institute of Development Research, policy actions by the RBI had only a modest impact on the term premium. The term premium is an indicator of the market’s expectation on future interest rates. At best, the woes restrained a sharp spike-like observed in 2020. The adversities faced during the initial phases of the novel coronavirus disease had severe repercussions on the Indian banking system.
2020 witnessed the spurred growth to a jotting point where it became almost improbable to recover. Most Indian citizens didn’t have the gauge to acquire loans as they saw no scope of repaying it in the foreseeable future. The mounting pressure of the lockdown cost them severely as most people even weren’t in a secure position to repay their existing EMIs.
A policy that changed the perplexion of the borrowings
In October 2020, The RBI inaugurated a new move that would accommodate higher credits for the home loans. In its statement on the development and regulatory policies, the apex bank stated that it had linked the home loans to the loan-to-value ratios. The scheme would apply to all the housing loans sanctioned up to March 31, 2022.
The move of the RBI came at the crucial point when the coronavirus cases were surging highly upwards. But was such a step justifiable under the bizarre circumstances that the Indian citizens were going through? Although the loans got the freedom of sanction, the banks isolated the people. Adding complicated terms and conditions in the scheme proved to be unsustainable as more people found it harsh to acquire loans.
RBI issued a statement referring to the changes that were going to get amended in the house loans policy. The prima cornerstone of the amendment was to provide house loans depending on LTVs. The RBI governor claimed that different risk weightage applies to housing loans. It gets based on two significant factors, the size of the loan and the loan to value ratio. RBI recognized the criticality of the real estate precinct in the economic recovery.
Besides that, it plays a crucial role in employment generation and the interlinking capabilities with other industries. Considering all the remorse and advantages, the RBI decided to launch a countercyclical measure. The equitable behind this was to rationalize the risk weights in the housing loans. The expedient is likely to offset funds for banks in India to lend to the real estate precinct, the second largest contributor to the Indian economy after farming.
THE EXPECTATIONS AT THE FORTHCOMING MPC MEETING
The previous MPC meetings have sustained their conception with the current repo rates for industrial production purposes. The experts from the industrial production fields have been diabolical in their approach towards the situation. The majority of them feel that the RBI should resort to reduce the repo rates even more.
The MPC meetings are prominent in deciding the whereabouts of the repo rates. When asked about the expectations from the forthcoming MPC, ANAROCK Property Consultant chairman Anuj Puri asserted that the RBI is likely to hold on to the repo rates for now. He said that the banking authorities are likely to keep an eye on inflation, and the economic recovery pans out in India. India perceiving a second wave of the coronavirus is becoming more inclined towards another prolonged lockdown.
State Authorities are in talks with the center to know more about the significance of the new variants. Furthermore, in such a synopsis, the RBI will likely maintain its status quo. Puri declined to comment on the perennial hopes of the real estate industry. The real estate powerhouses are demanding further deterioration in the repo rates. He claims that the prevailing home loan rates are the lowest-best and are enough to entice the homebuyers. The rate is said to get fixed at 6.70 percent. Economists have urged the RBI to pursue policy normalization in the second half of FY22.
“In our base case, we expect the MPC to shift towards a neutral policy stance and/or pursue reverse repo rate hikes (25-40bp) without recourse to policy (repo) rate hikes in FY22. We expect the repo rate to be hiked by 50 bps but only towards H2FY23,” said Tanvee Gupta Jain while expressing her opinion on the current policy of the RBI. The stature of the RBI is enormous, and its policy reflects the dynamism in which India is moving ahead.
The next stance of the RBI would be intriguing to know whether the banking equation has reached heights or not. Harshening of core inflation would be a sign of discomfort for Indians. The reversal of the softening trends of inflationary tactics would put RBI under more pressure to review the extent of monetary accommodation.