‘Neutral Stance on policy, but hiked rates: RBI seems to be playing both sides of the equation’: Dr. Niranjan Hiranandani '

A monetary policy that encourages economic growth, or one that controls inflation, this has been an eternal debate. The Reserve Bank of India (RBI), during its bi-monthly policy meeting this Wednesday, seemed to be playing both sides of the equation – it confirmed its ‘neutral’ stance on monetary policy, then announced hikes in repo and reverse repo rates by 0.25 bps each (the repo rate was hiked to 6.5 per cent, reverse repo rate to 6.25 per cent). The jury is out on whether the RBI’s stance just sends out mixed signals – does the ‘neutral stance on policy’ mean it can be status quo at the next bi-monthly review? Or, whether it reflects the RBI’s concern over recent moves, such as the impact of hiked Minimum Support Price (MSP) for Kharif crops announced by the Indian Government recently as also global crude oil prices coming down from historic highs but still remaining higher than average. Given that the RBI is looking at CPI inflation as moving from 4.6 per cent in Q2 to 4.8 per cent in H2 FY2019, going up to 5 per cent in Q1 2020, this suggests that coming policy reviews may see further hikes in rates. The RBI’s Monetary Policy Committee (MPC), which had raised the cost of financing in June, followed suit this Wednesday, the second time in two months that the crucial rate was hiked. This reaffirms the RBI’s commitment toward controlling inflation as also reducing risks to macroeconomic stability amidst several global uncertainties. From a real estate perspective, this hike will negatively impact buyer sentiment with the logical result on quantum of sales. The other ide of the argument is that RBI’s current stance is as yet ‘neutral’. Crude oil prices, which had surged to $80 per barrel, are now trading at lower rates, a report by Global Ratings Agency Moody’s suggests crude prices are likely to go lower. Will the RBI’s MPC take both aspects into account, and opt to maintain status quo in the next bi-monthly policy review? And, that happening, the RBI keep rates unchanged in the next policy review may not result in any major positive impact on real estate buyer sentiment. The Indian Government, a few days ago, has begun an initiative which aims to get real estate ‘back on track’. Union Housing and Urban Affairs Minister Hardeep Singh Puri convened a meeting earlier in July with stakeholders where several measures were discussed, including effective implementation of the RERA, to "revive" the real estate sector. The meeting discussed creation of a "stress assets fund" to complete stalled projects by providing last-mile funding. Real estate developers suggested reduction in the Goods and Services Tax (GST) to boost the real estate sector. Given this positive move on part of the Indian Government, the real estate industry hopes the Government comes up with initiatives decision that enhance buyer sentiment and give real estate a boost.