Key interest rates remain unchanged; There has been a spurt in loan disbursement in banks, housing finance institutions. by Balaji Rao
TeaThe six-member Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, kept interest rates unchanged as expected and the stance remains ‘accommodative’. The repo rate will remain at 4% (the repo rate is the rate at which RBI lends to banks on a short-term basis which is also considered as the benchmark rate for deposits and lending in the financial markets).
In the wake of the COVID-19-based economic disruptions, the central bank’s focus is on economic growth and getting GDP back on track (Gross Domestic Product is the growth criterion of an economy).
The MPC retained its GDP forecast for the financial year 2021-22 at 9.50% and lowered its inflation forecast to 5.30% from 5.70%. Despite the sharp jump in petrol and diesel prices in the last few months, inflation has come down surprisingly, which is good news.
The MPC was of the opinion that the economy was showing encouraging signs of recovery after the second COVID-19 wave and the easing of restrictions coupled with an intensive vaccination campaign augurs well for the economic recovery process. Liquidity position is quite good and demand is picking up at the macro level.
On the housing sector front, the status quo on interest rates can be seen as good news; The prevailing low home loan rates of 6.50% to 7.00% bodes well and will help in sustaining the home buying demand. The real estate segment has witnessed aggressive launch of new projects and brisk sale of ready houses/flats.
Banks and housing finance institutions have also seen good growth in their loan disbursements.
The question of whether interest rates will be cut in the coming months has a simple answer: unless there is a geopolitical shock and/or a sharp rise in crude oil prices, which will push inflation below the RBI’s comfort level. until then, interest rates will remain unchanged. At least for the next two quarters.
Interest rates may neither decrease nor rise as economic growth, liquidity and demand conditions remain favourable. Why tinker when there is no problem? These are the factors that have influenced the MPC to take an ‘accommodative’ stance on its future decision on interest rates.
With the economic engine gaining its momentum, it is expected to run at full speed. It could be a field day for RBI and MPC to control inflation as a fast-growing economy will come with its share of problems, and high inflation headwinds are one of them. It would be an unbelievable act if in such a scenario the think-tank of MPC is forced to hike interest rates which could be detrimental to the real estate segment and the economy as well.
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