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The Reserve Bank of India’s Monetary Policy Committee (MPC) decision to maintain status-quo on key policy rates was on expected lines. However, the continued accommodative stance, in spite of inflationary pressures that are seen to be hurting the economy, shows it remains focused on supporting growth.
But the MPC maintained its growth forecast for FY22 at a healthy 9.5 per cent. What then could be the concern that warranted a dovish stance? Surely, the Omicron variant of COVID-19 poses internal and external risks. Even otherwise, the uneven growth trajectory, especially the slack in private investment demand, has made the MPC vote in favour of taking a cautious approach. Although many believe that the present inflationary pressures are transient in nature, volatile commodity prices, headwinds from global developments and fiscal policies and supply chain disruptions could trip growth.
On top of this, consumer sentiment is stuttering, too. This comes out clearly in the latest RBI survey of consumer confidence that was carried out between October 25 and November 3, 2021, at the peak of the festive season and before the Omicron scare. The Future Expectations Index shows, among other things, that only two-thirds (of the sample) say they will spend more next year. This article explains why people have become so tight-fisted.
However, there have been some bright spots in the domestic economy, with the stage getting set for a long growth cycle. Real estate, mainly the residential segment, is one of them. After being weighed down by oversupply, regulatory pressures and financial problems, the housing sector is gaining from a time correction in property prices and low mortgage rates. In this exclusive interview with Moneycontrol Pro, Keki Mistry, Vice-Chairman and Chief Executive Officer of HDFC, explains why the housing segment is on the cusp of a super-cycle.
Certainly, this augurs well for the economy as realty growth is known to have a multiplier effect on other sectors such as steel, cement and labour. But a broader economic revival and improvement in labour markets can also lead to a question of whether policy rates should move up. It’s hard to tell how the wise people in the MPC room will vote. But the consensus suggests that rates have surely bottomed out.
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