Growth outlook for current fiscal lowered sharply from 7.6% to 7.1% : Anuj Puri, JLL

Growth outlook for current fiscal lowered sharply from 7.6% to 7.1% : Anuj Puri, JLL

A rate cut could have definitely allayed fears of a near-term loss of momentum

The Dollar Business Bureau

With RBI belying expectations of a rate cut, India Inc today expressed disappointment saying a rate cut was needed to provide a fillip to the flagging industrial economy and stimulate consumption that has been hit by demonetisation.

Reacting to the uncut rate, Anuj Puri, JLL India, Chairman & Country Head said, "Contrary to a wider perception that the policy rate will be cut by at least 25 basis points, India’s RBI has kept the repo rate unchanged at 6.25%. However, the growth outlook for the current fiscal year 2016-17 has been lowered sharply from 7.6% y/y projected earlier to 7.1% y/y at the moment. 

For the real estate sector, which is currently reeling under pressure from the recently-announced demonetization of high-value currency notes, a rate cut could have definitely allayed fears of a near-term loss of momentum. That said, even before the RBI’s announcement of its policy rates today, some banks have gone ahead and announced interest rate cuts on the back of improved liquidity in the system. This gives a lot of emphasis on the fact that the demand for mid-segment housing will continue to remain strong since the salaried class predominantly uses bank loans to finance their home purchases. 

Near-term disruptions in cash-sensitive sectors such as retail, hotels, and restaurants are going to transiently impact demand for commercial space, although with a fresh supply of cash these problems will cease to exist. However, if house prices are affected because of weak sentiment, overall consumption could witness an impact through the wealth effect, the possibility of which is uncertain at the moment. 

What could offer the real estate community some respite is if the policy committee would continue to remain accommodative and act positively on any opportunity available for rate cuts as soon as they arise going forward."

"At this juncture, a 50 bps point cut in the repo rate would have provided the needed boost to the flagging industrial economy. The consumption demand has been impacted post demonetisation and a rate cut would have given a strong signal to the consumers and to the industry as well," Ficci President Harshavardhan Neotia said.

"Amidst a highly uncertain global environment, the impetus for growth will have to come from the domestic economy," Neotia said.

Taking markets by surprise, the RBI today kept the short-term lending rate unchanged even as the central bank lowered GDP growth rate to 7.1 per cent and short-term disruption in economic activities due to demonetisation.

All the six members of Monetary Policy Committee headed by RBI Governor Urjit Patel voted in favour of the decision.

In view of disruption in economic activities due to demonetisation, RBI lowered growth forecast from 7.6 per cent to 7.1 per cent for the current fiscal.

"The underlying message is that the things at this stage seem to be in a state of flux even as the RBI itself has revised downward the estimates of the GVA by 50 basis points.

How the demonetisation would play out for growth, lending rates or even inflation is not clear," said Assocham President Sunil Kanoria.

EEPC India Chairman T S Bhasin said engineering exporters would look up to the central bank to restore normalcy in the domestic market by way of remonetisation of the currency.

"The exporting community is still facing problems with regard to production and reaching consignments to the ports.

The exporters were also expecting some special window for the labour intensive sectors at least with regard to lower rate of interest," Bhasin said.

The headline inflation is projected at 5% by the fourth quarter of 2016-17 with risks tilted to the upside but lower than in the October policy review.

On demonetisation, it said, the withdrawal of old high-value currency notes could transiently interrupt some part of industrial activity in November-December due to delays in payments of wages and purchases of inputs, although a fuller assessment is awaited.

 

The Dollar Business Bureau - Dec 07, 2016 12:00 IST
 
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