The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) on Wednesday left the key lending rate (repo rate) unchanged for the 10th straight meeting. However, the RBI revised its policy stance from 'withdrawal of accommodation' to 'neutral.'
The RBI adopts two key stances: neutral and withdrawal of accommodation. A neutral stance maintains policy rates and accommodative measures, balancing inflation control and growth. This stance is typically adopted during stable economic conditions.
Withdrawal of accommodation, however, signals a shift in priority from growth to inflation control. RBI increases policy rates (repo, reverse repo) and implements liquidity tightening measures. This stance aims to curb inflationary pressures, potentially slowing growth.
The implications of these stances are significant. A neutral stance sustains growth with stable interest rates, while withdrawal leads to higher borrowing costs, slowing growth. RBI's stance adapts to economic conditions. Recent examples include pre-COVID (neutral), 2020-21 (accommodative) with rate cuts, and 2022-23 (withdrawal) with rate hikes to curb inflation. Understanding RBI's stance helps investors, businesses, and individuals anticipate economic trends and make informed decisions.
“Although inflation has stayed below 4 per cent for the past two months, the risk of rising food prices is high. Additionally, rising conflicts in the Middle East threatens to disrupt supply chains and affect global energy prices, potentially impacting the domestic economy. China's recent announcement of economic stimulus has driven up global commodity prices, especially for industrial metals, over the last month,” says Anil Rego, Founder and Fund Manager at Right Horizons, a financial advisory firm.
Since the RBI’s last policy meeting in August, several major global central banks have started a cycle of cutting interest rates limiting pressure on rupee. While GDP growth moderated in Q1 and recent high-frequency indicators point to a slight slowdown in momentum, the overall growth remains robust. Real GDP growth is projected at 7.2 per cent for FY25
What This Means For Homebuyers
The stable policy rates would come as a relief to homebuyers, plus there is a chance that interest rates might be cut going ahead.
“While RBI has kept the benchmark lending rates unchanged at 6.5 per cent, a change in stance from “withdrawal of accommodation” to “neutral” indicates its clear direction for a possible reduction in interest rates in the foreseeable future,” says Vimal Nadar, Head of Research, Colliers India, a real estate consultant.
This ongoing stability in repo rate should provide a significant thrust to residential real estate during these festive months as home loan interest rates are likely to remain steady.
Agrees Pradeep Aggarwal, Founder and Chairman, Signature Global (India), a real estate developer. “As and when a rate cut is anticipated soon, which, when implemented, will benefit both homebuyers and real estate developers to capitalise on the market and strengthen overall economic growth.”
“From the point of view of homebuyers, the relatively affordable home loan interest rate regime will continue at a critical time for the Indian housing market - the festive season - amid rising housing prices and tapered sales,” says says Anuj Puri, Chairman - ANAROCK Group, a property consultant.
According to ANAROCK data, Q3 2024 saw average housing prices rise by a cumulative 23 per cent in the top 7 cities even as average prices in these markets collectively rose to approx. Rs 8,390 per sq. ft. by Q3 2024-end, from approx. Rs 6,800 per sq. ft. in Q3 2023,”
