RBI Keeps Focus On Paring Inflation

August 2, 2007	(1 votes, average: 5 out of 5)  Loading ...
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In an effort to cut asset price inflation, the Reserve Bank of India is fast squeezing the overall money supply. It desperately wants to bring the prices of property and stocks under control. Stratospheric real estate and stock prices are applying an inward pressure on the home loan interest rate.

The government first requires curtailing its own borrowing needs and importing duties to boost domestic supplies. Such steps will further prevent inflation. Going logically, it should actually try to increase the supply of commercial real estate.

Whether talk of hotel properties in India, commercial or residential properties, everything is turning costly. This in return is pushing cost of production which is already high. Needless to mention are the factors like poor power supply, inordinate money and time to transport goods within India.

The RBI is also stepping up the efforts to limit the funds flowing into the country and allowing a bout of rapid appreciation of the rupee. However, if the rupee will continue to appreciate this way, the temptations for investing in India properties would also mount. The dollar return on investment would be the rupee rate of return including percentage appreciation of the rupee against the dollar. Therefore, the RBI would like to hold the currency appreciation steady for sometime.

According to industry connoisseurs, India would need large investments to develop more cities to accommodate half of its population by 2020. Still, the RBI is releasing stringent rules to curtail the flow of capital in the real estate sector. This may be because the central bank is well aware of the fact that the foreign funds will go into increasing the property prices rather than boosting the development. It clearly underlines that the prospect of full rupee convertibility will remain there till the market for land gets sorted out.

News Published Under:   Banking and Finance |

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