Automobiles, real estate get a boost with RBI’s rate cut

Aamir H Kaki

Consumer durable manufacturers, automobile and real estate companies are banking on Reserve Bank of India’s (RBI) cut of 0.25 percent in policy rate to further kick consumer sentiments and boost purchasing in the ongoing festival season.

In a step that is likely to lead to low interest rates for housing, car loans and corporate borrowing, the RBI cut the short-term lending rate (repo rate) by 0.25 percent to the 6-year low of 6.25 percent in its fourth bi-monthly meeting on monetary policy.

Dr Asmi Raza, Professor of Economics, University of Delhi, speaking to The Dollar Business said, “The RBI move to cut the repo will give boost to investment prospects in the country. The level of confidence of investors has gone up. This will slightly go in the context of the things currently happening in the country. Message has gone to the investors that they come and invest in the country. This in turn will give boost to the ‘Make in India’ programme.

“The major boost will be to the real estate sector as it is going through a difficult phase for the last 3-4 years. The other sectors such as automobiles, consumer durables, jewellery and textile will also get a lift from the rate cut,” he added.

Dr. Raza further said, “The rate cut can also help in check the inflation rate to a great extent. There has to be a judicious combination of inflation and development. Unless the inflation is controlled, we are not able to do any economic activity. It should not cross certain limit otherwise it will not be good forthe common man.”

India has achieved a higher growth rate. It is also said by the World Bank and IMF that the country will grow at more than 7 percent. If we have to achieve that kind of growth, we need the repo rate to be down, otherwise it will not be possible to sustain the growth momentum, he added.

In his comments on RBI Policy, FICCI President Harshavardhan Neotia said in a statement that the Reserve Bank’s move to reduce the repo rate has come at theright time. We are hoping that going further this would turn into a bigger pass through by the banks and would result in lowering the lending rates further.”

He further said that the industrial sector’s performance has been volatile and would require continuous support. In order to drive investments, the cost of capital has to be competitive. Industries need to urgently see revival in growth. A moderate regime of interest rate will lead to a slight increase in interest sensitive sectors like automobiles, consumer durables and housing.”

On the rate cut, R K Arora, Chairman, Supertech Limited, said that the decision of RBI to cut the rate by 25 bps is a right decision taken at the right time and it is a positive decision for the real estate sector.”

“With the rate reduction in this festive season, the sluggish growth in the sector would end and with the implementation of new Real Estate Regulatory Act, together with the rate cut; more and more new projects would come up,” he added.