RBI Monetray Policy – April 2017



Ramesh Nair, CEO & Country Head – JLL India:

The policy has retained a neutral stance by keeping the repo rate unchanged. Though inflation has remained benign, inflationary pressures are nevertheless expected over the next financial year, for various pertinent reasons. For instance, there is some hardening of global crude visible, and the March 2017 round of RBI’s urban households survey showed an increase of 20-50 bps in inflation expectations compared to December. Also, hardening of global commodity prices could drive up India’s wholesale inflation as it is imparting inpu
t price pressures for firms. The proposed introduction of GST in 2017-18 also poses some uncertainty for the baseline inflation path, while El Nino weather patterns could impact rainfall and consequently agriculture output, which can impact food inflation.

Despite all the above, inflation is expected to remain in the 4-6% range for the financial year. Growth is expected to be healthy, though global uncertainties and domestic factors may cause some short-term shocks. RBI has noted that there is considerable divergence between lending rate as per MCLR (since December 2016) and older loans which are linked to the base rate (which has not declined much) and that the benefits need to be passed to buyers. Banks will be allowed to banks to invest in REITs and Infrastructure Investment Trusts, and detailed guidelines will be issued by end-May 2017.


The latest monetary policy is largely neutral for real estate, though quite positive for allowing banks to invest in REITs and InVITs and the strong suggestion that banks should transmit the policy benefits of reduced lending rates more comprehensively. Concerns on inflationary pressures notwithstanding, inflation is expected to remain within 4-6% and faster economic growth is expected in 2017-18 with GVA (Gross Value Added) to be 7.4% against the previous 6.7%.

Knight FrankShishir Baijal, Chairman & Managing Director, Knight Frank India:

“The decision to keep the repo rate unchanged at 6.25% is on expected lines because of the liquidity scenario and inching up of inflation. However, deep down we wished that a rate cut could give the ideal fillip for growth in the residential sector riding on the lower interest rate regime, regulator on the anvil and overall better performance of the economy.”

Nikhil Gupta, Economist, MOFSLMr. Nikhil Gupta, Economist, MOFSL:

RBI kept policy repo rate unchanged at 6.25% but hiked the reverse repo rate to 6% and cut the marginal standing facility (MSF) rate to 6.5%. Effectively, the rate corridor was narrowed from 100 bps to 50 bps. The RBI has indicated that in case, liquidity remains in huge surplus state, a set of tools – including MSS bonds, cash management bills (CMBs), reverse OMOs etc — may be adopted to suck the excess liquidity.

As far as economic projections are concerned, the RBI has not changed it from their previous meeting in February. Real GVA growth is expected to rebound from 6.7% in FY17 to 7.4% in FY18. On inflation, RBI sees risks evenly balanced. They project CPI-inflation at 4.5% in 1HFY18 and ~5% in 2HFY18, versus average 4.5% in FY17.

Going forward, monsoon holds the key for the next rate action. We believe that if monsoon is normal, inflation could surprise positively, which may allow one more rate cut (of 25bps) in the second half of 2017. Nevertheless, if monsoon turns out to be bad then inflation could move beyond 5%, allowing the RBI to hike rates in 2H 2017.