Mumbai: The quarter per cent reduction in repo rate by the RBI on Tuesday is not likely to bring down interest rates on home loans, personal loans or car loans.
The central bank in its mid-quarter monetary policy review on Tuesday said that the foremost challenge is getting the economy back on the “high growth trajectory” and that while a competitive interest rate was necessary for this, it was not sufficient.
RBI governor Dr D. Subbarao said “sufficiency conditions include bridging the supply constraints, staying the course on fiscal consolidation, both in terms of quantity and quality and improving governance.”
The auto industry in its reaction said there should be at least a one per cent cut in interest rates. Banker Chanda Kochhar, managing director and Ceo of ICICI Bank was non-committal and said “Today’s policy actions together with the measures taken by the government on the fiscal and investment fronts, indicate continued overall policy support for a revival in economic growth.”
Realty companies were cautious in expressing their disappointment. Brotin Banerjee, MD and CEO, Tata Housing Development Company Limited noted that since the central bank (and lenders also) said there isn’t any further room for rate cuts in the near term the “real estate sector maintains its stance of cautious optimism,” while Anshuman Magazine, chairman and MD, CBRE South Asia Pvt. Ltd said the repo rate cut is not going to reduce interest rates meaningfully in the short term. “Therefore this move will not have any immediate impact on the real estate market for which steps need to be need to be taken to increase the liquidity.”
Nomura Financial Advisory and Securities (India) Private Ltd agreed with the RBI that higher cost of capital is not the only hurdle to growth and there was need to spur growth by removing domestic bottlenecks and governance issues.
“With interest rates near neutral the onus on boosting investments and hence growth, lies squarely with the government to implement the recently announced reforms. Only when supply is enhanced should the RBI cut rates to boost demand, in our view.”