Kolkata: The Reserve Bank of India’s stance to keep the repo rate unchanged at 6.5 per cent at the first Monetary Policy Meeting of FY25 will bring in a greater amount of investment into the market and liquidity will improve thus creating greater confidence in investors. The continuation in repo rates also signifies that depositors can continue to benefit from high-interest rates on deposits.
The decision to maintain the status quo will keep the ongoing residential real estate sales momentum on course and unimpeded. Aspiring homebuyers eyeing a purchase will proceed with confidence. The industry remains optimistic that the RBI will contemplate rate cuts and build a shallow rate cut cycle from June onwards to support lower interest rates and credit demand.
MV Rao, Chairman of the Indian Banks’ Association (IBA) & Managing Director & CEO of the Central Bank of India, said that the monetary policy announcements from RBI related to the repo rate and stance of the policy are on the expected lines. By and large, no change was envisaged in the policy by the market participants. The global economy exhibits resilience and inflation which was the key concern among most countries is also treading down.
“Domestically, the economy is doing well and all growth impulses show signs of positive momentum. Considering all these factors, RBI has maintained its GDP growth projection for FY 25 at 7.0 per cent. In terms of prices also RBI has maintained the retail inflation projection at 4.5 per cent for FY 25. However, it revised downwards its projection for Q1 of FY 25 to 4.9 per cent from 5.0 per cent, Q2 to 3.8 per cent from 4.0 per cent as projected in the February policy,” Rao said
In Q3 of FY 25 CPI inflation is projected at 4.6 per cent which is the same as the previous policy estimates and for Q4 it is projected at 4.5 per cent which is lower than the 4.7 per cent of the previous policy. These estimates indicate a softening of the prices. However, in most of the cases, it is still above the lower end of the band of 4 per cent. The focus continues to be on inflation.
On the regulatory front, permitting eligible foreign portfolio investors (FPIs) to invest and trade in Sovereign Green Bonds in IFSC could further improve the flow of resources towards this product.
Permitting Small Finance banks to deal with Rupee Interest Rate Derivative products could help them use this tool for hedging interest rate risks.
RBI has emphasized the importance of financial stability, the importance of governance and strict adherence to policy guidelines to maintain financial stability and also to ensure the safety of the resources of the public kept with the regulated financial institutions. To sum up, the announcements in the policy are quite balanced and take into consideration the overall financial stability of the ecosystem, Rao said.
The RBI’s move to keep the repo rate unchanged will provide an impetus to housing sales. Housing sales across the top seven cities have been phenomenal in the last few quarters, even though prices are rising steadily. As per ANAROCK Research, total housing sales of over 1.30 lakh units across the top 7 cities in Q1 2024 - the highest quarterly sales in the last decade. Average residential prices across these cities have seen a significant jump in the last year – ranging between 10-32% in Q1 2024 when compared to Q1 2023.
“Thus, the breather which RBI's unchanged repo rate will provide to home loan borrowers is apt and welcome,” said Anuj Puri, chairman of ANAROCK Group.
Advice to investors
“Till inflation is around 4.0% on a durable basis, MPC is unlikely to cut rates. So we can expect rate revisions mostly in Q3FY25. With this background, interest rates being at multi-year highs make it a perfect entry point for investors to allocate funds in Debt. Investors can lock in the high-interest rates by investing in long maturity Fixed Deposits, bonds or duration Mutual funds,” said Vijay Kuppa, CEO, of InCred Money.
The continuation in repo rates also signifies that depositors can continue to benefit from high-interest rates on deposits. Going ahead, we remain optimistic that the RBI will contemplate rate cuts and build a shallow rate cut cycle from June onwards to support lower interest rates and credit demand. Overall, we believe that investor sentiment will continue to remain bullish, supported by the market's persistent strength, said Swati Saxena, founder & CEO, 4 Thoughts Finance.
Pankaj Pathak, senior Fund Manager, Quantum AMC said For the bond market, we continue to maintain a positive outlook, supported by a falling inflation trend, the possibility of rate cuts, global bond index inclusion and favourable demand-supply mix.
Investors with a 2-3 years investment horizon can consider dynamic bond funds to potentially benefit from the falling bond yields. Conservative investors with shorter holding periods should stick with liquid funds.
