Niranjan Hiranandani says Rate Cut for Real Estate Unlikely in the RBI Policy Review

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Mumbai, Maharashtra, India

From a real estate perspective, the Reserve Bank of India (RBI) policy review on Tuesday, April 7 has the potential to be a key ‘trigger’, one that has the potential to create a positive sentiment in the real estate industry, said Niranjan Hiranandani, MD, Hiranandani Constructions Pvt Ltd (HCPL). “It is something that would gladden the hearts of all connected with real estate,” he added.

The RBI policy review on 7 April will be the first such event following the first full budget presented by Finance Minister Arun Jaitley.

Lower interest rates for project finance and home loans have the potential to be a key ‘trigger’ for real estate, everyone understands this, said Niranjan Hiranandani. “But, will it happen on the day RBI announces its first bimonthly monetary policy review of the current fiscal? My heart says the RBI Governor Raghuram Rajan should do so, but my mind doesn’t share the enthusiasm. On the eve of the review, one can say with certainty that the RBI Governor is well aware of the potential a rate cut would have, but he also has been keeping watch on data about containing inflation – and that is something that leads the mind to not be so enthusiastic about the probability of a rate cut on 7 April,” he added.

“India’s economy has seen two unscheduled rate cuts since January, which have brought the repo rate down from 8 per cent by 50 basis points to the existing 7.50. And, it happened after a gap of two years from the previous interest rate cut,” he added.

The RBI Governor, after the cut in January this year, had said: “The key to further easing are data that confirm continuing disinflationary pressures and sustained high quality fiscal consolidation.” This is where there is a slight hitch – statistical data shows that Consumer Price Index (CPI)-based inflation has risen to 5.37 per cent for February 2015, from 5.19 per cent in January and 4.28 per cent in December 2014. “Logically, It would suggest that any query on whether the RBI would bring in rate cuts on 7 April, which has the potential to create a positive sentiment for real estate, might not have a positive response,” said Niranjan Hiranandani.

India needs lower interest rates for high growth, and it rate cuts in the near future are expected, which in turn, will trigger a reduction in cost of borrowings. “Ideally, it should happen – but, on the eve of the policy review, although my heart says ‘think positive’, I will go by what my mind says – which is: it seems a bit unlikely that a rate cut should be expected on 7 April,” concluded Niranjan Hiranandani.

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