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RBI may cut key policy rate by 25bps on Feb 8, say poll participants

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RBI may cut key policy rate by 25bps on Feb 8, say poll participants

The key concerns weighing on the six RBI monetary policy committee members in seeking to push growth won’t be inflation but overseas factors, analysts said.

MUMBAI: The Reserve Bank of India is likely to cut the policy rate by a quarter percentage point, with the government adhering to fiscal prudence amid growth optimism and easing inflation, according to an ET poll of 18 market participants. RBI is scheduled to announce the monetary policy on February 8, a week after the Budget was unveiled.

“A conservative fiscal policy, easing inflation trajectory and short-term risks to growth keep the door open for further easing,” said Radhika Rao, a Singapore-based economist at DBS Bank. “The government plans to adhere to fiscal discipline while also making room for inclusive growth policies.”

Finance minister Arun Jaitley’s pledge to bring the fiscal deficit back on track despite some deviation in the next fiscal year has encouraged expectations of further moderation in the policy. Added to that is the government’s plan to step up spending on infrastructure. “Budget’s underlying philosophy on fiscal prudence too has underscored a strong case for RBI rate cut,” said Shubhada Rao, chief economist, Yes Bank. “Together with easing monetary policy and fiscal expenditures towards capex, this should push up the country’s growth.”

The key concerns weighing on the six RBI monetary policy committee members in seeking to push growth won’t be inflation but overseas factors, analysts said. These include US policy changes, rate increases by the US Federal Reserve and China’s growth outlook “RBI’s biggest challenge this year will be to strike a right balance between supporting growth and increased external uncertainties,” said Anubhuti Sahay, chief India economist at Standard Chartered. “Retail inflation is unlikely to pose any challenge with easing food prices and contained core inflation (excluding gold)… Increased infrastructure and rural allocation are key positives from the Budget.”

The central bank left rates unchanged at the last policy announcement on December 7, despite widespread expectations of a rate cut. Wednesday’s policy statement will also be keenly parsed for anything RBI has to say about demonetisation, which was announced on November 8. With the window for deposits of old notes at banks having closed on December 30, the central bank will have a better understanding of how much cash has come into the system.

BOND WORRY
Domestic debt securities could well lose their sheen in the event of the Federal Reserve raising rates, thus narrowing the differential with Indian bonds, adding to RBI’s policy complications.

During the fiscal, the benchmark bond yield has dipped by 110 basis points, pushing prices up. One basis point is one hundredth of a percentage point. Retail inflation, a key trigger for rate actions, has been in line with RBI’s 5% target for March end. The Consumer Price Index dropped to 3.4% in December from 6% in July 2016.

Banks, meanwhile, have slashed lending rates across the board, emboldened to pass on RBI’s previous rate cuts as deposits of demonetised notes have left the system flush with funds. Overall system liquidity is running at more than Rs 5 lakh crore, according to India Ratings, against a deficit nearly a year ago. But with remonetisation picking up, that’s expected to recede ahead of the fiscal year-end as withdrawal limits are eased, shoring up market rates, experts said.

“With commercial banks already having cut their lending rates by about 80-90 bps (basis points) in one clip earlier this year, it is unlikely that they will reduce the rates any further without the policy rate being lowered further,” Kaushik Das, Mumbai-based economist at Deutsche Bank, said in a note.

In the current financial year, the central bank has collectively slashed the repo rate, at which banks borrow short-term funds from RBI, by half a percentage point to 6.25%.

“There has already been significant lending rate transmission, which is expected to persist in the near future,” said Saugata Bhattacharya, chief economist at Axis Bank.

Source: economictimes.

 

 

 

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Regulations

373 Maharashtra Cities To Fall Under PMAY Scheme

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The state of Maharashtra has added 232 cities to the existing 142 which makes it 373 cities under the Pradhan Mantri Awas Yojana Scheme (PMAY).

The officials at the housing department feel that this step will aid the government take up more projects under the PMAY scheme.

Sachin Kulkarni, Builder shared his concerns over the lack of coordination between the department in executing PMAY projects. He said, “This is a good sign. However, the PMO’s seriousness in promoting HFA is diluted by the time it reaches the authorities. Apart from collecting application from interested beneficiaries, nothing has moved on the ground in urban centres. I hope that this initiative moves on fast track”.

Maharashtra CM Devendra Fadnavis recently states that the in order to create more housing stock the state’s Slum Rehabilitation Authority scheme be brought under PMAY so that it can receive the subsidy to create more affordable housing. He clearly mentioned that the government intends to create more housing stock and it was taking various initiatives and making policy changes for it.

Also Read- Affordable Housing To Get A Boost With PMAY’s Scope To Be Extended To Private Lands

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Real Estate Sector May Fall Under GST What Does It Mean For Buyers?

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One after the other the real estate sector has witnessed massive policy and law changes in its systems. Nonetheless, the tide has not passed yet. The GST council will take up a proposal to bring it under the uniform nationwide levy.

As the industry is still recovering from the RERA Act, the finance minister, Arun Jaitley said that there is a strong case to include real estate in the new indirect tax regime. He said this last week and also mentioned that GST Council will discuss it in November.

At present, the home buyers are paying 12 percent GST on under-construction properties. This percentage includes two taxes which are stamp duty and registration. The rate of which varies in each state but GST will make them uniform.

Santosh Dalvi, KPMG India partner (indirect tax) said, “If the entire real estate is brought under GST, they would have to abolish the stamp duty and we don’t know how the government plans to compensate the states for their loss.”

The stamp duty with registration and GST comes to approximately 18 percent for under construction properties. He further said, “So, it’s important to look at what rate it will be taxed at. We can then look at consumer prices”.

While agreeing, Bipin Sapra, EY partner (indirect tax), added, “It’s going to be a test for the government”.

Developers also pay taxes on raw materials. However, unlike other businesses, they don’t get any tax refunds through input credit. GST taxes every stage of the business activity to better compliance and compensates for it by permitting refunds.

Anuj Puri, Anarock Property Consultants chairman, said “By including real estate under GST, builders can get a fair amount of input credit, helping bring down costs,” He added that it would make homes cheaper for buyers.

According to Sapra, it will depend on the tax rate applicable.

Niranjan Hiranandani, co-founder of Hiranandani Group said, “Real estate under GST ambit means consumers will only have to pay one final tax.” He stated that with the commencement of RERA it brings transparency and GST would reduce the burden in terms of taxes payable while buying the home. He concluded, “Not only will this create positive sentiment but it should also boost actual sales”.

Also Read: Affordable Housing Is The Changing Face Of Indian Real Estate

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Home Buyers Will Be Covered Against Builders Who Are Going Bankrupt

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In a move to protect home buyers from builders declaring their bankruptcy, the Insolvency & Bankruptcy Board of India (IBBI) has amended rules which make it necessary for any company to showcase how they have dealt with interests of all stakeholders. This is directed towards companies like Jaypee Infratech and some of the entities of Amrapali Group.

The regulator has informed about the revised rules last week. This will ensure that banks and other creditors do not get away by protecting their interests at the expense of others who are impacted by the action.  Banks are part of the creditors’ committee. They become an important decision-making body after a company is admitted for bankruptcy.

An expert bankruptcy lawyer said, “The change in the rules has plugged a gap as flat buyers are of the view that there is nothing to protect their interests.”

According to the new law that was enacted last year intends to speed up the resolution process in a period of 180 days, with a possible extension of 90 days. This will be done by appointing insolvency resolution professionals who will take charge of the company’s operations and prepare a plan. As per the law, an information memorandum will be finalized if the creditor’s committee is willing to take applications from other interested companies to take over the company.

The insolvency experts say that the law providing for the plan binds corporate debtor (the company) and its members, employees, guarantors, and creditors, other stakeholders involved in the resolution plan. However, there are no obligations mentioned in the rule to give any treatment to the stakeholders other than the financial creditors (banks) and operational creditors, which includes vendors and others who may have dues.

The National Company Law Tribunal, based on the comfort provided by the revised rules, will choose the final resolution plan based on bids that are received. The lawyer further said, “The tribunal will not clear the resolution plan without giving notice to all stakeholders and the flat buyers can raise objections at that point of time.”

Also Read: Tanvi Group Fail To Deliver Homes And Declare Bankruptcy

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