RBI Keeps MPC - rates are unchanged at 6.5%, status Quo for the 6th time.
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Reactions from prominent real estate players
The MPC's decision to hold rates at 6.5% for the sixth consecutive time reinforces RBI's focus on supporting durable growth even amidst external risks from geopolitical conflicts or monetary policy tightening globally. While inflation persists above the target band, its gradual glide path downwards has provided the room to extend the policy rate pause and monitor the lag effect of cumulative hikes this year.
For India's real estate sector, this status quo comes as a relief, even if temporary, after facing headwinds from rising home loan costs through 2022. Developers will also welcome the breather after material and financing costs escalated equipment and project costs. The outlook seems encouraging for broader economy, with inflation set to cool off further, a growth-focused Union Budget 2023, and resilience across macroeconomic parameters.
While risks remain from global factors, the RBI's accommodative stance exemplifies the structural strengths and unique dynamics powering India's ascendancy amongst the world's fastest growing major economies. As long as economic fundamentals hold up, demand drivers for housing like urbanization, rising incomes and nuclearization should continue fuelling market growth.
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Gurmit Singh Arora, National President, Indian Plumbing Association
As the RBI continues its accommodative stance by holding rates, it provides interim relief to industries facing cost pressures from cumulative hikes over 2022. The breather allows participants across real estate, infrastructure and allied ecosystems to assess the lag effect of past tightening measures before next steps.
For plumbing and sanitary ware, volatile material costs from global supply chain disruptions had already squeezed margins. As borrowing rates ease a bit, players can focus more on streamlining operations and driving efficiency instead of price escalations alone. Dewatering, pipe producers and pump manufacturers also get fiscal latitude to stabilize inventory cycles.
However, we must also optimize costs, enhance production technologies and improve channel synergies for greater value delivery to stay resilient. Because over the medium term, auxiliary interest rates in the broader economy will rise further to contain inflation. So rather than temporary troughs, the sector must use the next few quarters to bolster capabilities and competitive strengths.
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The RBI’s supportive stance has opened this window where industry participants can come together to drive innovations and adopt smart solutions for conserving resources. Thereby we create future readiness to still deliver affordable quality products and customizations benefiting end consumers.
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An unchanged repo rate is a delight for buyers since it gives them another chance to buy real estate at the greatest pricing. In February 2023, the MPC last increased this rate by 25 basis points, to 6.50%. According to recent data, consumers are doing reasonably well in the housing market, which is consistent with the strong status of the economy. As we approach the new quarter of the season, home sales are trending strongly; the RBI's decision to maintain current interest rates will be critical in propelling the growth of the residential sector.? The Repo Rate, which is the interest rate at which the RBI lends money, is an essential tool of monetary policy that the RBI utilises to control inflation and growth. For example, when the repo rates increase, banks have to pay more for RBI borrowings.
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The MPC's accommodative stance by holding the repo rate at 6.5% reiterates its focus on nursing economic growth amidst global headwinds. With inflation showing a controlled glide path over 2023, preserving momentum seems prudent before conclusively taming price-rise pressures.
For real estate, the breather from further rate hikes provides temporary respite as home loan rates remain elevated post the cumulative 250 basis points rise last year. As we progress through 2023, the transmission of these cumulative hikes to bank lending rates will accrue more meaningfully, thereby impacting mortgage serviceability and affordability.
However, India's broader growth outlook seems optimistic backed by solid domestic demand drivers. Our favorable demographics, rapid urbanization and rising household incomes continue catalyzing structural housing demand, beyond transient property cycles. So while property enquiries may witness some moderation due to higher borrowing costs, volume declines seem unlikely.
Developers however need to astutely balance product positioning across target customer categories to mitigate affordability challenges until funding availability eases. With resilient economic expansion over 2023, India's real estate sector should adapt to transient headwinds, with sectoral growth recovering in the medium-term.