Thursday, April 28, 2011

HDFC's interest in low interest rates

Mumbai home sales dropped to a 2-year low last quarter, according to real estate analyst Liases Foras, and logged 14% lower than the previous quarter, even while unsold units reached 105 mn. square feet.

In India's largest market, Delhi and surrounding areas, sales soared in contrast, by a whopping 32%; nevertheless, unsold units soared to 194 mn. square feet, roughly 2 years worth of sales at the current elevated levels.

This dynamic could turn explosive if the Reserve Bank of India (RBI) decides to actually pay people money to lend money to banks, rather than pay banks to borrow money from the RBI - which is what is happening today, when the RBI repo rate is considerably below inflation. The volume of economists - including the IMF - pressing the RBI to get tough on inflation is ratcheting up, even while the Chairman of HDFC, our largest housing lender, says that 25 bps (0.25%) is hike enough. Of course he would - who would like to see the cost of his major (only) raw material go up!.

This view, in an interview printed in the Mint this morning, is a lot better than another pious statement he made a couple of days ago, that the RBI is never behind the curve. That sounds a bit like his fellow Mumbaikars believing that Ganesh statues were drinking milk a few years ago. Actually worse, because in that case, it did appear that the milk was disappearing into the stone of statues. In this case, it would be pretty obvious to anyone who bought their own milk and vegetables that inflation is way ahead of the RBI's gentle incline. I guess Deepak Parekh doesn't.

Buy his own milk and fruit, I mean.

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