RBI Keeps Key Lending Rates Unchanged
The Reserve Bank of India (RBI) last Friday kept the key repo rate unchanged at 4% considering rising inflation and weak signs of economic growth amid the gradual lifting of a nationwide lockdown imposed due to the COVID-19 pandemic.
The newly-formed Monetary Policy Committee (MPC) of the central bank began its three-day meeting on 7 October and maintained the stance after adjusting.
With this, the repo rate remains at 4% and the reverse repo rate at 3.35%. The reason for the rate cut is after the apex bank announced a cumulative 115-basis-point cut from February this year. Experts were of the view that RBI may reduce rates by 25 basis points in the month to come.
The three-day meeting, which began on October 7, 2020, was the first meeting of the newly formed Monetary Policy Committee (MPC), which was formed after the appointment of three external members including Jayant Verma, Ashima Goyal, and Shashank Bhide. Previously this meeting was scheduled for September 29-October, the six-member MPC meeting had to be rescheduled to 7-9 October 2020 due to new appointments.
Here Are The Key Lending Rates As of Today
- Repo Rate: 4%
- Reverse Repo Rate: 3.35%
- Marginal Standing Facility Rate (MSF): 4.25%
- Bank Rate: 4.25%
RBI to Rationalize Risk Weights on Housing Loans To Drive Demand
To boost the housing sector, the Reserve Bank of India decided to reconcile the risk weight on housing loans, making the product attractive to both borrowers and lenders. With the changes in risk weights, the need for capital provision for banks will be reduced. This will encourage banks to proceed with housing loan products with attractive features.
At the same time, it will give an impetus to the job-intensive real estate sector that is sweeping the epidemic.
However, the banking regulator has decided to provide additional liquidity of Rs 10,000 crore to National Housing Bank and NABARD with the move, which will greatly benefit the housing sector. Alternatively, this move will help NBFCs and the housing sector deal with the liquidity crisis.
Impact Of Unchanged Repo Rate On Homebuyers
Even though RBI in its Monetary Policy Review 2020 has decided to leave the repo rates unchanged, it has already brought it to a 15-year low since February 2019 through a cumulative reduction of 250 basis points. By taking loans from top banks, lenders in the country have already lowered home loan interest rates to register lower levels.
Stating that further reduction in key interest rates was not possible at this time, ASSOCHAM President Niranjan Hiranandani said the RBI encouraged the decision to reconcile the risk weight on home loans and link it to the debt-to-value ratio would boost the real estate sector. “This step would ensure that more credit is available to borrowers. This move is a much-appreciated step, recognizing the role of the real estate sector in generating employment and economic activity,” he said.
According to Surendra Hiranandani, chairman and managing director of the House of Hiranandani, any cut in policy rates would certainly have pushed home buyers, who were waiting for the right opportunity to invest in their dream home, so as to strengthen their shopping decision.
