The six-member committee began deliberations on interest rates and analysing the state of the economy amid tensions in the Middle East…reports Asian Lite News
The Reserve Bank of India (RBI) is likely to maintain the status quo in its Monetary Policy Committee (MPC) meeting, said industry experts on Monday, as the much-anticipated three-day meeting began, led by Governor Shaktikanta Das, amid geo-political uncertainties.
The six-member committee began deliberations on interest rates and analysing the state of the economy amid tensions in the Middle East. The RBI Governor will announce the MPC decision on October 9.
Shishir Baijal, Chairman and Managing Director, Knight Frank India, said that growing geopolitical concerns, particularly in the Middle East, add to inflationary concerns that can emerge from its impact on crude prices.
“Despite elevated interest rates, India’s economic growth has remained resilient, with consumption indicators such as home sales maintaining robust momentum. This sustained growth provides adequate cushioning for the RBI to keep the repo rate at the existing level of 6.5 per cent,” Baijal added.
Additionally, the imbalance between credit and deposit growth, where credit growth has outpaced deposit growth, may prompt the RBI to keep policy rates tightened, keeping it unchanged for an extended period, said experts.
For the real estate market, a cut in the repo rate would result in lower interest rates on home loans, which makes EMIs more manageable for borrowers.
According to Anuj Puri, Chairman, Anarock Group, the housing market is especially sensitive to changes in acquisition cost since in India, most home buyers use home loans.
“Of course, interest rates are not the sole factor to influence purchase decisions as property rates also play a big role. More attractive interest rates can help improve overall affordability, and this can help catalyse housing sales during the festive season. Improved sales also benefit developers as better sales improve their cash flows and reduce their borrowing expenses for projects,” said Puri.
While the recent US Fed cut would have prompted the RBI to follow suit, the fact is that the global economy is facing considerable uncertainty because of the ongoing geopolitical tensions.
Experts said that it is a tightrope walk for the RBI and it is, therefore, possible that it will hold on to the current repo rate for now, until these pressures ease.
Business Optimism Surges
Buoyed by policy continuity and strong domestic demand, especially in rural India, business optimism has soared among India Inc and the industry remains bullish on business sentiments in FY25, a survey showed on Sunday.
The Confederation of Indian Industry (CII) Business Confidence Index rose to a two-quarter high of 68.2 in the second quarter of the current financial year (July-September period), as compared to 67.3 in the previous quarter and 67.1 in the corresponding quarter last year.
The survey respondents cited factors such as improvement in consumption, especially rural demand, steady progress in monsoon, continued emphasis on reforms and fresh sightings in private investment as the key reasons which will drive growth in the current financial year.
More than half (59 per cent) of the respondents anticipate an improvement in private capex in the first half of FY25 as compared to the second half of FY24.
This is encouraging as this is likely to provide support to public capex which has shown an uptick recently after a lull in the first quarter due to elections, the findings showed.
“In tandem with the improvement seen in the business prospects, industry has responded positively on the availability of employment opportunities across sectors. Almost half of the respondents anticipate an improvement in the hiring situation in their companies during the second quarter,” the report mentioned.
The upcoming festive season portends well for fortifying growth prospects further. That said, the uncertainty in the global scenario persists, necessitating a careful watch on the evolving economic conditions, according to the leading industry chamber.
The survey highlighted that more than half of the respondents anticipate sales and count of new orders in their companies to increase in the July-September quarter.
Consequently, most of the respondents (46 per cent) feel that the capacity utilisation levels in their company would range between 75-100 per cent during the quarter ending September 2024.
“This level is higher than the proportion witnessing such capacity utilisation levels in the previous quarter. Moreover, capacity utilisation between 75-80 per cent is a propitious sign as it helps to fuel fresh investments in the economy as per the RBI,” the survey report noted.