RBI shield for housing sector from liquidity disruptions

Repo rates remained unchanged by RBI
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The RBI governor announced additional special liquidity facility for the housing sector. Rs 5,000 crore to the National Housing Bank to shield the housing sector.

By Varun Singh

The Monetary Policy Committee of RBI met on 4th, 5th and 6th August for its second meeting of 2020-21.

For housing sector the biggest RBI announcement was the shield it has provided via National Housing Bank.

The MPC sifted through domestic and global conditions and evaluated their unfolding impact on overall outlook for India and the world.

At the end of its deliberations, the MPC voted unanimously to leave the policy repo rate unchanged at 4 per cent.

And continue with the accommodative stance of monetary policy as long as necessary to revive growth, mitigate the impact of COVID-19.

The Marginal Standing Facility (MSF) rate and the Bank rate remain unchanged at 4.25 per cent. The reverse repo rate stands unchanged at 3.35 per cent.

In the MPC’s assessment, global economic activity has remained fragile and in retrenchment in the first half of 2020.

The MPC noted that in India too, economic activity had started to recover from the lows of April-May; however, surges of fresh infections have forced re-clamping of lockdowns in several cities and states.

RBI Governor in his address said, “Living with the pandemic has improved the way we manage it – working from home; virtual meetings; and “contactless” transactions.”

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Good news for the housing sector from RBI is the shield from liquidity disruptions.

RBI Governor, Shaktikanta Das said, “Additional special liquidity facility of ₹10,000 crore will be provided at the policy repo rate consisting of : Rs 5,000 crore to the National Housing Bank (NHB) to shield the housing sector from liquidity disruptions and augment the flow of finance to the sector through housing finance companies (HFCs).”

The remaining Rs 5,000 crore is to the National Bank for Agriculture and Rural Development (NABARD) to ameliorate the stress being faced by smaller non-bank finance companies (NBFCs) and micro-finance institutions in obtaining access to liquidity.

On the financing side, net foreign direct investment moderated to US$ 4.4 billion in April-May 2020 from US$ 7.2 billion a year ago. 

The housing sector is reeling under a lot of pressure especially because of the lockdown. With job losses, and salary cuts, buying a home is not on the top of the minds of home buyers.

The real estate sector needs a stimulus in form of liquidity and home buyers should be passed the benefit of home loan interest rates being slashed.

Only with such proactive steps will the real estate industry survive.

RBI governor ended his speech with these lines, “The challenges of today will only strengthen our resilience and self-belief. We shall remain alert and watchful and collectively do whatever is necessary to revive the economy and preserve financial stability. Courage and conviction will conquer Covid- 19.”

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