Experts Comment on RBI’s December 2024 MPC Review

Mr. Pradeep Aggarwal, Founder & Chairman, Signature Global (India) Ltd

“The Apex Bank’s decision to maintain the repo rate at 6.5% while reducing cash reserve requirement by 50 basis points, reflects a balanced and prudent approach to sustaining economic stability while fostering growth. This continuity provides a stable environment for the real estate sector, enabling developers to plan with confidence and homebuyers to benefit from favorable borrowing costs.

However, a rate cut in the future could infuse much-needed liquidity into the real estate sector, accelerating growth and enhancing accessibility for buyers. As India continues to experience robust economic activity, this stable monetary stance will act as a catalyst for long-term growth and investment across industries.”

Anuj Puri, Chairman – ANAROCK Group

Considering the recent slowdown in economic growth momentum and inflation going up, RBI decided to keep the repo rates unchanged at 6.5% for the eleventh consecutive time.

To address the liquidity woes, it decided to slash the cash reserve ratio (CRR) to 4%. This cut in CRR is positive for the Indian real estate sector, as banks will have higher lending capacity. This directly supports developers to borrow more for development.

A repo cut in repo rate would have helped boost housing sales momentum further, particularly since we have seen sales tapering in the last two quarters. However, the continuation of relatively affordable home loan interest rates will attract borrowers from this segment, especially since housing prices saw a significant rise in the last quarter.

As per ANAROCK Research, Q3 2024 saw average housing prices rise yearly by a cumulative 23% in the top 7 cities even as average prices in these markets collectively rose to approx. INR 8,390 per sq. ft. by Q3 2024-end, from approx. INR 6,800 per sq. ft. in Q3 2023.

With prices rising, housing sales declined to some extent in Q3 2024. As per ANAROCK Research, Q3 2024 saw residential sales go down by 11% annually against Q3 2023. New launches also fell by 19% in this period.

Thus, the unchanged home loan rates support demand in the ongoing period. Further, given that sales were tapering in the last two quarters, developers too have been cautious about hiking prices lately. In this scenario, it makes sense for homebuyers to press the ‘buy’ button as the overall cost of acquisition of a property will remain relatively affordable.

BHAVIK THAKKAR, CEO Abans Investment Managers

While RBI policy today on the Repo rate status quo and CRR cut of 50 bps has been on expected lines, RBI has increased the ceiling for offering FCNR (b) deposits (where NRIs can hold foreign currency deposits in India) by around 150 bps. This suggests that RBI is thinking more about strengthening of $ against ₹. In the last few weeks, appreciation in $ has resulted in the weakening of ₹ (and also other major currencies) wherein RBI intervenes by selling $ and buying ₹ to maintain demand for ₹. This results in lower forex reserves. Today’s step of increasing the ceiling for FNCR deposits (which means higher interest rates for foreign currency deposits) makes us think that RBI expects continuous actions particularly from the USA which can strengthen the $.

 Jigar Trivedi, Senior Analyst, Reliance Securities

 In line with the forecast, the Reserve Bank of India left its benchmark interest rate unchanged, amid continued inflationary pressures even though economic growth slumped. The RBI’s monetary policy committee voted four-to-two to keep the repurchase rate at 6.5% on Friday. “MPC believes only with durable price stability can strong foundations be secured for high growth,” Governor Shaktikanta Das said in a live-streamed address in Mumbai. The Reserve Bank of India’s rate-setting panel has lowered India’s FY25 GDP growth forecast to 6.6% from 7.2%. India’s inflation has remained well above the RBI’s 4% target aim, with price gains accelerating to a 14-month high of 6.21% in October. Das had previously said a rate cut at this stage would be “very risky” and he was in no hurry to join the wave of easing by global policymakers. The central bank has kept the rates unchanged for almost two years now, but calls for easing are growing louder after a sharper-than-anticipated dip in the July-September period economic growth to 5.4%. We are of the opinion that there will be a rate cut at the February policy meeting.

Nishant Srivastava CEO of Torus Wealth

The RBI’s decision to hold the repo rate at 6.5% signals a firm stance on inflation control, even as GDP growth forecasts for FY24 are trimmed to 6.3%. I feel the 50 bps CRR cut is set to inject ₹1 lakh crore into the banking system, bolstering liquidity. While equity flows may remain cautious short-term, the additional liquidity could drive optimism in key sectors as markets anticipate a potential rate cut in early 2024.

Mayank Joshipura, Vice Dean, Research & Ph.D. Programme, Professor (Finance)

The 2nd quarter GDP growth of 5.4% signals a widespread slowdown and that needs to be addressed by bold moves. Today, RBI has tried to improve banking system liquidity by cutting CRR by 0.5%. However, only the repo rate cut going forward will bring down the cost of borrowing and EMIs and boost consumption, and arrest the economic slowdown. Maybe better core inflation numbers going forward would allow the central bank to take measures that can put the economy back on a high growth trajectory.

Dr. Niranjan Shastri, Associate Professor (Finance) at SBM – SVKM’s NMIMS

Indian economy is facing challenges of inflation on the one hand and slow-down signals on another hand. The RBI’s decision to maintain the repo rate at 6.5% is a cautious approach considering signs of growing food inflation. However, to infuse more liquidity and thereby giving a push to growth is done through the announcement of a reduction in CRR in two tranches. While the rate hike pause aims to support economic growth, the focus remains on controlling inflation. The reduction in CRR will inject liquidity, potentially boosting credit and economic activity.

Mr. Dhruv Agarwala, Group CEO, Housing.com & Proptiger.com said:

The RBI’s decision to keep the repo rate unchanged for the 11th consecutive time reflects concerns over inflation, despite lower-than-expected growth in the September quarter. With housing affordability under pressure due to rising property prices, a rate cut could have boosted the real estate sector, particularly amidst slowing urban demand and moderation in wage growth. However, housing demand remains strong, especially in the high-end and luxury segments, with most new launches in the December quarter targeting these categories. Targeted measures, like adjustments to the Cash Reserve Ratio (CRR), can inject liquidity to sustain this momentum. Balancing inflation management with demand stimulation will be crucial for long-term stability and growth in the sector.

Piyush Bothra, Co-Founder & CFO, Square Yards

“The RBI’s decision to keep the repo rate unchanged is slightly disappointing, as the general expectation was for a rate cut of at least 25 basis points. However, the decision to reduce the Credit Reserve Ratio (CRR)) by 50 basis points is expected to help increase liquidity in the banking system and boost overall credit disbursements. The real estate sector continues to be buoyed by significant pent-up demand and improved affordability. We do not anticipate any negative impact from the unchanged rates on demand as we enter the final quarter, which is traditionally the strongest quarter of the financial year.”