The RBI hikes the repo rate, the rate at which it lends short-term funds to banks, by 25 bps while retaining its stance of withdrawing accommodation. The repo rate increase by 25bps to 6.5% is in sync with the broad market consensus view. However, what was probably considered slightly on unexpected line was RBI maintaining its withdrawal of accommodation stance to ensure inflation remains within target going forward, while also supporting growth.
The central bank’s policy stance remains focused on the withdrawal of accommodation. In its December monetary policy review, the central bank had raised the key benchmark interest rate by 35 basis points (bps). Since May last year, the Reserve Bank has increased the short-term lending rate by 250 basis points, including today’s, to contain inflation.
Industry Experts Opinion
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Ramesh Nair, CEO, India and Market Development, Asia, Colliers
“The Reserve Bank of India increased the repo rate by 25 bps in February 2023. This sixth increase in a row adds to the 225 basis points increase seen in 2022 alone. This rate increase, which is lower than last time, reflects the government’s unwavering attempt to tackle inflation over the last few months. The retail inflation rate started easing in the latter part of 2022 now hovering within the government’s target below 6%, although core inflation continues to be sticky. If inflation continues to show positive outcomes combined with encouraging high performance economic indicators, we hope to see fewer rate hikes or negligible rate hikes by the RBI, going ahead.Home loan interest rates are already in the higher bracket of 8-9% in recent times. Further, housing prices are expected to largely remain firm in the upcoming quarters. On the optimistic side, we hope not to foresee a further rise in the repo rate and a resultant increase in loan rates. This will help sustain the demand and confidence of homebuyers in the market”
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Mr. Amit Goyal, CEO, India Sotheby’s International Realty
The rate hike of quarter basis point by the central bank is on expected lines. Inflation is still above RBIs comfort levels and considering the evolving inflation outlook, it’s important to ensure inflation remains within the tolerance band and progressively aligns with the target. The good news is that amid volatile global developments, the Indian economy remains resilient and is expected to grow at 7% in FY23.
While an increase in repo rate will certainly increase the home loan interest rates, we are optimistic and expect the housing demand to remain intact.
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Mr. V Swaminathan, Executive Chairman, Andromeda Sales and Apnapaisa.com, India’s largest loan distributors.
Repo rate is directly linked to loan rates offered by lenders so an increase in the repo will increase the borrowing cost and vice-versa. The rate hike of 25 bps today will make EMIs expensive by approx 2-4%. Borrowers will either have to shell out extra money to repay their loans or will have to extend their tenure.
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Mr. Pradeep Aggarwal, Founder and Chairman, Signature Global (India) Ltd
“The increase of repo rate by 25 bps the apex bank is aimed to give an extra cushion to curb inflation in the face of geopolitical uncertainties. It is an accommodative move as per current micro and macro economic conditions globally as well as domestic markets. Controlling inflation is the RBI’s mandate, and the apex bank is showing prudence in taking corrective measures to curb rising inflation.”
He further added, “However, considering the growth focused fiscal budget announced by the Government earlier this month, combined with the positive market sentiments, it is quite evident that the affordable and mid segment housing is going to witness a significant upsurge in demand in the coming months. We are confident that residential sales would increase at least 20 percent in this quarter and at least 30 percent on YOY basis overall”.
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Mr. Saransh Trehan, Managing Director, Trehan Group
With the latest increase in repo rate, home loan rates will cross the level of 9% per annum. So far the demand in the housing sector remained unimpacted with past increase, but any further hike in interest rate will certainly put a break on the demand in the housing sector.