RBI Defers Rate Cut to ‘Counter’ Covid-19
RBI didn’t announce a rate cut, thus making the real estate industry further uncomfortable. However, with Corona virus at its prime, the industry any way isn’t expecting much.
By Varun Singh
RBI didn’t announce a rate cut, while the real estate industry was expecting it, but it didn’t come. Amid the growing concerns over the economic impact of Covid-19, the RBI was expected to agilely tread along the lines of its western peers and announced an emergency rate cut to ease growing economic pressures and infuse liquidity into the system.
RBI rate cut is one means of staving off a recession which may arise due to the coronavirus spread. Countries like US, England, Australia, New Zealand, etc. have all gone ahead with such emergency rate cuts in order to fend off the potential brunt of an exacerbated liquidity crisis.
Anuj Puri, Chairman, Anarock Property Consultants says, “The expected emergency RBI rate cut did not materialize. The question of whether it would have helped the Indian real estate sector in the current scenario does, in any case, not have any easy answer.”
How does a RBI rate cut help? The answer is that, a rate cut sends out positive signals. With the recent shut downs and lock down measures being taken, e-commerce will in any case benefit over the short-term and brick-and-mortar retail will not until malls open again – and people feels safe enough to visit them.
But will a rate cut benefit in such times? Puri says, “A rate cut would also have done little to boost housing uptake, as the recent advisory for social distancing has impacted site visits and thus overall housing sales.”
Most Developers will choose to defer new launches and will wait to see how the situation unfolds over the next month or two. A rate cut could have addressed overall liquidity concerns to some extent, but many developers will keep new launches on hold. Construction activity may also take a hit if the situation becomes worse.
Manju Yagnik, Vice Chairperson, Nahar Group and Vice President, NAREDCO (Maharashtra), says “Central banks across the globe have started taking action by cutting rates – U.S. Fed has cut rates by 150 bps to near zero, agree with Indian central bank RBI as it has decided to wait and assess the overall impact of Corona virus on Indian economy before deciding on its next rate action.
While a rate cut will boost sentiments of real estate, central bank’s assurance on stability of banking system and safety of their funds in the form of bank deposits will boost confidence in the Indian Banking System.
“Faster cure to the virus, increased liquidity, low rates, positive business sentiments and high economic growth will directly impact fortunes of Indian real estate sector,” she added.