Home buyers and those repaying home loans were major beneficiaries of the fourth bi-monthly monetary policy statement of 2018-19 announced by Reserve Bank governor Urjit Patel on Friday. With key policy rates unchanged, there will be no hike in monthly instalments home loan borrowers have to pay, and lending rates are unlikely to rise from current levels. This is also good news for the Prime Minister’s affordable housing vision and for the housing and construction sector. The construction sector hopes the credit freeze on the real estate sector will end.
These are also some sectors that are job creators. So many birds have been killed with one stone. However, there is one puzzling question: which is that some banks had raised rates anticipating that the RBI would hike the repo rate (the rate at which the RBI lends money to commercial banks if they’re short of funds.) Will they reverse this hike now?
The markets, however, gave a thumbs down to the monetary policy as both the Sensex and Nifty tanked to record lows.
The RBI and the markets were not on the same page, and rightly so, as it’s not the RBI’s mandate or role to calm the markets or stop the rupee’s fall. It also can do nothing about rising global crude oil prices or the global trade wars. All these are predicated on the administrative policies of the Centre and of the states. Dr Patel stuck to focusing on his inflation target, that was obviously in his comfort zone. It would seem he didn’t want to disturb or put any impediments in the growth path while supporting financial stability.
The economy grew at the highest level of eight per cent in an earlier quarter. Capacity utilisation has risen to 75.2 per cent and investment has started to come in from the private sector. This investment is, however, not in the quantum that is needed. Analysts say that while highways and the renewables sectors have seen a revival of public-private partnership, private investment in other infrastructure areas have been lagging. Rating agency Crisil expects to see investments of a magnitude that would sustain the share of infrastructure investments at over six per cent of GDP over the medium to long term.
The concern of certain economists and some others who wanted a rate hike was inflation risks that are present due to rising crude prices, risks to exports because of global trade wars and rising interest rates in the United States, which leads to many foreign portfolio investors preferring to invest in their own country. But India has not and is unlikely to be adversely affected by this as the FPIs haven’t been net investors this year. Also, for now, India has adequate foreign exchange reserves to meet any eventuality.