25 Bps Rate Cut Tepid; More Needed To Stimulate Demand

By Shishir Baijal, Chairman & Managing Director, Knight Frank India

“In light of the ongoing economic distress in the country, the 25 basis points cut in policy rate is short of expectation. While it is the fifth consecutive rate cut this year, it is insufficient to support the flagging consumer demand. The stressed real estate sector was looking up to a strong rate cut and sector specific lending provisions to improve both liquidity scenario and consumer spending ability. As has been witnessed so far, a cumulative 110 bps REPO rate cut over the last 6 quarters has failed to stimulate consumer demand as well as private investment in the economy. A slew of factors such as slowing economic output, rising unemployment rate and low consumer confidence have hindered the percolation of these small quantum rate cuts to the economy at large. On this backdrop, another 25 bps rate cut by Reserve Bank of India (RBI) comes as a disappointment, more so for the real estate sector. The aggravating non-banking financial company (NBFC) liquidity crisis is severely impacting credit availability for the industry, especially developers, as they struggle to raise even construction finance. Lack of liquidity stimulus will only worsen the situation further. Therefore, a substantial rate cut to reinvigorate end consumer demand and intervention on real estate sector specific lending provisions could have been a better intervention at this juncture.

The central bank and the government have taken several measures to aid the supply side in the recent past. However, it is the weak consumer sentiment and spending inability that is the fundamental problem of the current economic slump. Unless meaningful initiatives are taken to propel consumer demand, these supply side interventions may not meet the desired goal of economic revival.”

Corporate Comm India (CCI Newswire)