RBI reduces repo rate by 25 bps

The monetary policy committee of RBI has announced that the repo rate will be reduced by 25 basis points in the crediting rate for the short term. This is also referred to as the repurchase rate. This announcement has been made during the first bimonthly review of the rates for the financial year 2019-20. Presently, the repo rate is fixed at 6%, after the changes have been made. This was the second time that the repo rate has been reduced this year by the RBI. This decision to cut the repo rate makes India the first Asian country to reduce the interest rates two times in a span of three months. As an impact of the repo rate cut, the EMI that borrowers had been paying are likely to be reduced. The benefits are likely to be passed on to the borrowers by the banks. Particularly, the real estate industry will benefit from the decision, as the borrowers will be interested to get loans to buy houses.

RBI stated in a press release that GDP would remain in the range between 6.8 to 7.1% in the first half of the financial year 2020. In the second half, it might increase to 7.3% to 7.4%. For real estate investors, this is a good time to make the purchase, as they can avail the loans at a reduced rate. Particularly, the repo rate has been reduced by 50 points in 2019. This is a great news for the investors.

In the initial half of FY 2020, inflation in consumer price has been 2.9 to 3%. This is below the comfort zone of RBI, which is fixed at 4%. In the second half of the financial year, the central bank believes that the inflation may rise to 3.5 to 3.8%. Eventually, the risks remain evenly balanced.  It is important for the real estate investors to make the best use of this opportunity, as the housing industry is witnessing a surge in prices. In the important cities, people are looking for both residential and commercial properties. This is a good time for them to buy these properties, as they can enjoy the low EMI and generate revenue from the properties, as the prices increase in the coming months.

Analysts state that although the rate was reduced in February, liquidity continued to remain tight and the plans did not materialize as expected. The central bank continued with its open market operations, a deficit of INR 40, 000 crore was evident during March-end in systematic liquidity. The tightness in liquidity was evident, as perceived in the high credit-deposit ratios and increased spreads of corporate bonds. Eventually, real estate investors have a good opportunity to invest in residential and commercial property now.