Industry’s take on hike in rates by RBI

Industry’s take on hike in rates by RBI

New Delhi: As the RBI announces the hike in the repo rate by 25 basis points, the industry had their views on it. Some of the industry people shared their views with

Talking about the hike in the repo rate in the monetary policy review, Adhil Shetty, Co-founder and CEO, says, “The decision is on expected lines and a well-thought-out precautionary move to stay ahead against a backdrop of global volatility in crude and elevated commodity inflation worldwide. The move has reined in inflationary expectations which will help cushion the rupee as well.”

Adding further he says, “The central bank has further retained its GDP growth projection for 2018-19 at 7.4% and for the banking sector, in particular,  RBI has allowed 2% more SLR (statutory liquidity ratio)  to meet liquidity coverage ratio. This will particularly help banks in distress.”

In his advice to the home buyers, Shetty said, “An existing borrower may not immediately witness any change in their EMI amount, but a higher interest rate would eventually increase the long-term interest out-go. One of the ways to protect yourself is by making a pre-payment that would lower your overall interest outgo. This would be particularly a good move for those at the beginning of their loan tenure.”

For those who are going to end their loan, he advises that it is wise not to take any steps and simply maintain the loan until the end of its tenure to collect any useful tax deductions. He says, “You can also adopt a wait and watch policy for a quarter and take time to understand the impact of the rate hike on your loan. If there is a significant impact, you can explore transferring the home loan to other banks after a comparison of the rates offered to grab the best deal. Simultaneously, you can also increase your savings or step up your investments to pre-pay your loan so that the interest outflow is not as high.”

PHD Chamber of Commerce and Industry said that hike in the repo rate is disappointing. Anil Khaitan, President, PHD Chamber of Commerce and Industry has expressed concern over the increase in policy repo rate by 25 bps from 6% to 6.25% by RBI in Second Bi-monthly Monetary Policy Statement, 2018-19.

As IMD has projected favorable monsoon condition in 2018, high inflation should not be a worry at this juncture, said Khaitan.

RBI has increased the policy repo rate by 25 basis points to 6.25%, the reverse repo rate under the LAF stands at 6%, marginal standing facility (MSF) rate and the Bank Rate stands at 6.5%.

Though the economy has recovered very sharply from the effects of demonetisation and teething problem of GST, strong and sustainable growth trajectory is yet to be realized, added Khaitan.

The hike in policy rate would affect the overall business sentiments including the production possibility frontiers of industry, expansion of trade and services sector activity and rural demand, said Khaitan.

Industry, especially small and medium enterprises are facing acute problem in availing finances from the banks vis-a-vis recent stringent norms adopted by few Public Sector Banks (PSBs), said Khaitan.

The working capital is already impacted because of buyer-credit limits under the LoUs/LoCs which has impacted billions of dollars from the system.

We urge the RBI to adopt softer monetary policy stance to reduce costs of borrowings and strengthen the economic growth trajectory, going forward, said Khaitan.

Vinay Kalantri, Founder and Managing Director, TMW (The Mobile Wallet) says, “The Reserve Bank of India’s directive to the payment industry regarding enhanced data protection and privacy norms in its first bi-monthly monetary policy statement this financial year on Wednesday is indeed a welcome and timely step. It comes at a time when the global financial sector has been rocked by data integrity issues and the General Data Protection Regulation (GDPR) norms kicking in the European Union (EU) and the European Economic Area (EEA). The RBI norms are in sync with EU GDPR rules and will go a long way in enhancing the security of Indian payment systems which are getting more and more interoperable. It will also allay customers’ apprehension about the security and integrity of critical information pertaining to their personal finances and restore their confidence in the industry”

Niranjan Hiranandani, President NAREDCO said that this hike in repo rate will not make a major difference to real estate. He said, “The RBI has raised a ‘cautionary flag’ on inflation, by raising the repo rate by 25 basis points. This marks the first interest rate hike in four-and-a-half years. The counter-balancing factor was that the RBI has retained its ‘neutral’ stance. The six-member monetary policy committee (MPC), headed by Governor Urjit Patel, adjusted reverse repo rate to 6 per cent.”

He also termed the rate hike as ‘justified’ on account of inflationary trends, global hardening of interest rates and petroleum prices moving up. He added that in the long run, “we would prefer rates coming down”.

According to Pankaj Bajaj, President, CREDAI NCR “Real estate sector needs all the help it can to help revive the demand which has been on hold for last 2 or 3 years. We would have been happy if home loan rates had remained unchanged. But .25% change in home loan rates is not material to sway the purchase decision of a prospective urban family which is thinking of buying a home. The government has made a number of other interventions in the last 1 year to revive housing demand. I don’t think a marginal rate hike would have too much of an impact. Home loan rates are still quite attractive”.

Dhananjay Sinha- Head, Institutional Research, Economist & Strategist at Emkay Global Financial Services Ltd. is of the opinion that the announcement of 25bp rate hike by RBI broadly encompasses considerations of upside revision in inflation trajectory going ahead, the impact of rising commodity prices and rising global yields, led by tightening of US dollar liquidity.

He says, “With this hike, the RBI has finally reversed the 25bp cut it initiated in Aug’17, while retaining neutral stance, in the aftermath of demonetisation and impact of GST implementation, which led to surplus liquidity condition. Even With this rate hike, the stance is still not of tightening. In our view, this rate hike could lead to a tightening stance if the inflation risks accentuate along with currency depreciation.”

Adding to his point he said, “In our view, before today’s hike, the RBI was already behind the curve as the GSec yield curve, money market curve and implied forward rates from the currency market had been pricing in more than 50bp hike.”

“Clearly, the risk to rate sensitive sectors, banking NBFC, reality, cap goods, have materialized as expected. We believe as the expectations on future hikes materialize, these risks can become more relevant. The key thing to watch is whether growth recovers strong enough to compensate for rising rates. We maintain our view that fair value for 10 years GSec is at 8.4%,” Sinha further says.