How RBI repo rate hike affect the homebuyers
4 min read . Updated: 06 Dec 2022, 11:02 AM IST
Premium‘A comparatively lower impact on mortgage rates will also be helpful in supporting homebuyer demand as the year draws to a close,’ said Shishir Baijal, Chairman and Managing Director, Knight Frank India
Amid expectations of a moderate interest rate hike of 25-35 basis points (bps), the Reserve Bank of India's rate-setting panel on Monday started brainstorming for the next round of monetary policy. RBI Governor Shaktikanta Das would be announcing the bi-monthly monetary policy tomorrow, December 7.
India's largest lender State Bank of India in a research report said: "We expect the RBI to hike rates in smaller magnitude in December policy attuned to emerging market central banks and the overall rate setting tone. A 35-bps repo rate hike looks imminent. We believe at 6.25 per cent, it could be the terminal rate for now".
Several other experts too expect the rate hike to be in the range of 25-35 bps. The current policy repo rate is 5.9 per cent.
“RBI is likely to soften the pace of its rate hike in the upcoming MPC meeting as inflation is expected to moderate in the coming months given that global commodity prices and the domestic wholesale prices have softened from the peak witnessed early this year. Also, as seen in the Q2 FY23 GDP print, except for the service sector, a degrowth was seen in most of the core sectors such as industry, manufacturing etc. Hence, with inflation potentially showing signs of ebbing and growth concerns coming to the fore, we expect the RBI to hike its repo rate by a comparatively subdued 30-35bps in the upcoming MPC meeting," said Shishir Baijal, Chairman and Managing Director, Knight Frank India.
Hence, a 30-35bps of repo rate hike by the RBI would be reasonable in this cycle to address inflation without impacting growth to a large extent, he added.
"From a real estate perspective, 190bps of repo rate hike so far has already transmitted into a 105bps of rise in the MCLR rates. The mortgage rates have increased in line with the MCLR and the cumulative growth in residential sales in the last six months have understandably begun showing some signs of slowing. The affordability of the home buyers has also reduced by 10% since the beginning of this interest rate hike cycle. Hence, a 30-35bps of repo rate hike by the RBI would be reasonable in this cycle to address inflation without impacting growth to a large extent. A comparatively lower impact on mortgage rates will also be helpful in supporting homebuyer demand as the year draws to a close," said Baijal.
The RBI has hiked key benchmark lending rate by 50 basis points (bps) thrice since June over and above an off-cycle 40 bps increase in repo in May.
In tandem with the hike in the central bank's policy repo rate since May this year, all major banks have increased their external benchmark-based lending rates (EBLRs) by 190 bps though they have been slow in raising the deposit rates.
