The recent stand-off between the government and the RBI owing to the NBFC crisis and the apex bank’s endeavour to maintain its autonomy and reserves had caused the industry to watch closely whether the repo rate will increase or remain unchanged. That said, today’s move by the RBI to keep the repo rate unchanged at 6.5% was more or less expected. This was not solely because inflation targets are still under control.
Unchanged Repo Rates Astute from All Angles
Politically, an upward revision would not have served the current Government well as the 2019 elections are around the corner. From the economic standpoint, a hike in repo rates would have had a direct impact on home loan rates. High housing loan interest rates are known deterrents to many buyers, especially in the affordable segment where higher interest rates can and do weaken sentiment.
Any move to further discourage customers from availing of bank credit would ultimate exacerbate the liquidity crunch and adversely impact the economy. From that perspective, the unchanged repo rate will at least keep the demand for housing loans at status quo.
The RBI obviously needs to maintain an adequate buffer for the economy – especially in light of the massive changes that are likely to come about in the next few months in form of REITs and SPVs. Also, the NBFC crisis currently shows no signs of relenting, and keeping the repo rates unchanged is definitely in tune with the current market signals.