After five consecutive rate cuts in 2019, the Central Bank takes a pause

by Suman Gupta

Ramesh Nair, CEO & Country Head – India, JLL

The central bank by keeping the rates unchanged has recognised that the need of the hour is to infuse confidence about the economic growth through a holistic approach. This will come by combining fiscal and monetary measures.

Amidst the ongoing debate of whether the RBI will bottom out its rate cut cycle or continue to slash policy rates, the sixth bi-monthly monetary policy review of 2019 ended with the central bank keeping the policy rate unchanged at 5.15%. The conjectures over the RBI pulling a pause button over rate cuts turned out to be true as it has maintained its accommodative stance.

The decision to maintain policy rates augurs well for the economy as the recently introduced policy reforms will take time to pan out and materialise. The economy needs to absorb the impact of the recently introduced reforms and the previous rate cuts. The real estate sector is expected to pick up due to the favourable policy incentives and the faster transmission of previous rate cuts.

Moreover, with the inflation already crossing the 4 percent mark and expected to remain elevated for a few quarters, further rate cuts would have posed an upside risk.

In light of the recently announced reforms doled out by the government, the real estate sector is expected to register higher growth in times to come. Measures brought so far are likely to show their impact. Complementing the corporate tax cuts and the creation of an AIF fund for stressed projects, the government should explore the options of increasing the money supply in the economy. That would not only encourage consumer spending but also stimulate investment flows and higher credit flow which has come down over the quarters.