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Raghuram, Rate-Cut and Real Estate

raghuram rajan realestate rate cut realtymyths
“Raghuram Rajan’s tenure as RBI Governor is ending in September 2016. Real estate, which is reeling under shadows of slowdown would want him to continue. Though the likelihood of him continuing his second term is not clear. What seems clear at this point of time is that there shall be a ‘status quo’ in tomorrow’s bi-monthly monetary policy review”
raghuram real estate rate cut realtymyths
Santosh Sinha

Reserve Bank will tomorrow do the bi-monthly monetary policy review. As always, industry is keenly looking at Raghuram Rajan. However, one major difference, this time, is that the industry is more interested in knowing future course of the RBI Governor than the rate cut he does. Industry knows that extension of Raghuram’s tenure shall have a greater impact that a mere 25 bps cut. To some extent, the industry also knows that a rate cut, this time, is quite unlikely to happen.

The RBI has, since January 2015, reduced Repo Rate by 150 bps to 6.5%. One basis point is one-hundredth of a percentage point. The last rate cut happened in April this year and since then, nothing significant has happened which can call for a rate revision. Instead, retail inflation rose to 5.4% from 4.8%. Wholesale inflation, which was reeling in negative territory for past 18 months, touched 0.3%. Crude price too has shot up by almost 30%. Along with monsoon, the crude price is one thing that RBI is closely watching. It has a larger impact on the overall functionality of an economy and influences Rupee valuation as well. Only good thing that RBI expects to happen is an above normal monsoon. India has suffered drought for consecutive two years. A ‘good’ monsoon can bring down retail inflation significantly.

The Apex Bank would thus, prefer to wait and watch. In that case, the Real estate sector, which is going through a series of changes, would also have to wait for the rate cut. Recently the sector has been brought under the Regulator, though it is yet to taste the water. Both buyers and developers feel that Real Estate Regulatory Authority (RERA) will work towards bringing transparency into the system which in turn, will boost sales. A rate cut, this time, could vitalize the entire process.

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