RBI rate cut by 0.25bps a robust move

The Reserve Bank of India has brought new year's goody pack for realty sector in the form of cut in Repo Rate and CRR by 25 bps. With this robust move realty sector took sigh of relief at some extent.  Whereas, from last couple of years property market is not doing well and homebuyers are losing their hopes to buy their dream homes.

Here are some important points of Rate cut policy

• 25 bps reduction in repo rate from 8% to 7.75% (consequent adjustment to reverse repo rate to 6.75%)

• Reduction of bank rate to 8.75%

• Reduction of CRR by further 25 bps to 4%

The apex bank has committed to improving liquidity in a cash-strapped economy by reducing the CRR further in this policy coupled with reduction in repo and bank rates.

Liquidity is expected significantly improve in the economy on the back of the reduced repo rate, CRR and bank rate. Consequently, there should be a revival in investment and growth – including in the real estate space. Industrial activity, which has been sluggish last year, should bounce back in the medium term.

However, there are some contra views over the apex bank's decision, the Credai national president Lalit Kumar Jain hails the rate cut policy but wants special focus on realty “Though RBI has made a good beginning, the repo rate cut by 25 basis points is just not enough. What we need is creation of a robust supply to curb inflation for which RBI needs to continue to ease fund supply position, month-on-month and quarter-on-quarter for realty sector,” he said. Contrary to this MCHI-Credai president Paras Gundecha says, RBI rate cut is small step. Similarly there are some realty pundits have hailed the RBI's move says, move will help to curb to some extent the negative sentiments of Realty Sector.

According to some market research reports the reduction of 0.25percent shall generate approx Rs. 18,000cr in the banking system.  Additionally the move may lead to a smooth lending rates in the property industry. . In turn, this shall help the industry access cheaper funds and improve operating margins.

On the other hand the cut in rate will also brought some hopes for home seekers as it will surely reduce the cost of borrowings and this will directly lead to the huge demand across the country. After RBI's huge step now realty industry is expecting from central government to come out and take some robust move to aid realty sector such as in the forthcoming budget allowing External Commercial Borrowing for high-segment housing, increasing tax rebate on housing loans and reducing import duty on capital goods for construction and infrastructure.