Anticipated high growth projection, under controlled inflation and narrowing account deficits are indicative of improved macroeconomic fundamentals. An icing on the cake could the latest move by Reserve Bank of India to reduce the repo rate.
RBI has reduced the repo rate by 25 basis points to 7.25%. This has been the 3rd time in the year when RBI has reduced the repo rate.
This initiative undertaken to enhance the investment sentiments of the nation is expected to transmit through the banking system, with other major banks also deciding on rate cut. In fact banks like SBI and Punjab Bank have already cut down their lending rates, thereby signalling a better credit environment in the coming time.
Along with other sectors, the step could be instrumental in boosting home buyers sentiments by offering cheaper home loans. Likewise the step will also be beneficial to the supply dynamics by offering better loans to the developers, which are presently burdened by high funding cost.
Though some industry insiders believe the rate cut are very little to induce a significant impact. A cut tantamount to 50 basis points could have made a better impact. At this point, it is also essential that other banks too aggressively cut down their lending rate, thereby converting the RBI initiative into better loans for buyers. However, many banks are reluctant to do so due to poor growth in their credit market in the last financial year.
Nevertheless, it is expected that RBI will take similar steps in the coming time to further reduce the repo rate. This will keep the buyer sentiments upbeat.