RBI policy: Is pause in rate hike a good news for your home loan EMIs?

  • Bhavesh Kothari, Founder & CEO, of Property First said, Home loan rates would have reached a record high if the RBI MPC had increased the repo rate by 25 basis points, as was predicted by industry experts, keeping in view the inflationary pressure.

Pooja Sitaram Jaiswar
Updated6 Apr 2023, 10:32 PM IST
RBI kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50%.
RBI kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50%.

Real estate experts cheered the moment RBI paused its rate hike on Thursday. Policy repo rate unchanged at 6.5% augurs well for home buyers and the demand in realty as a whole. If RBI had taken a rate hike which is what was expected, then home loan interest rates could have reached an all-time high amidst the inflationary pressure which could have impacted property buyers' sentiment. The pause comes as a relief to borrowers' home loan EMIs.

In an unexpected move, RBI kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50%. Subsequently, it also kept the standing deposit facility (SDF) rate unchanged at 6.25%, while the marginal standing facility (MSF) rate and the Bank Rate were also unchanged at 6.75%.

Inflation still stays above RBI's upper tolerance limit of 6%. In February 2023, the latest reading of CPI is at 6.44%. RBI has factored inflation downward at 5.2% for the fiscal year FY24, while GDP growth is projected at 6.5%.

However, the six-member MPC decided to remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns with the target while supporting growth.

In regards to home loans, Bhavesh Kothari, Founder & CEO, of Property First said, "Home loan rates would have reached a record high if the RBI MPC had increased the repo rate by 25 basis points, as was predicted by industry experts, keeping in view the inflationary pressure. Even though inflation continues to remain outside the tolerance limit of the RBI, it has shown a bold move by leaving its benchmark lending rate unchanged. This augurs well for the sector in general and buyers in particular."

Since the time RBI began the rate hike cycle in line with other central banks to tackle inflation, there has been a significant jump in banks' lending and deposit rates. The reason behind this would be that rate hikes usually lead to a spike in the cost of funds for banks and hence the lenders pass on the impact to end borrowers.

Latest, RBI's data showed that the 1-year median MCLR has climbed to 8.55% in February from 8.45% in January. Also, the share of external benchmark lending rate (EBLR) on total outstanding floating rate rupee loans surged to 48.3% by end of December 2022, while MCLR-linked loans increased to 46.1%.

As per Knight Frank, the outstanding home loans grew by 15% in FY23 till February 2023.

Also, the home loan rates have alarmingly peaked at 9.5% since RBI began to hike rates in May 2023 to tame inflation. Before April 2023 policy, RBI hiked the repo rate six consecutive times in 11 months --- taking the total upside to 250 bps in the repo rate from 4% to 6.5%.

With the pause in a repo rate hike, Kothari said, "Demand for housing has been robust in the past one and a half years, and a comparatively moderate interest rate regime would prove to be greatly beneficial for the real estate sector as well as the economy."

Meanwhile, Likhita Darshan, Vice President - Marketing & Customer Experience, Vaishnavi Group pointed out that RBI's decision to maintain the status quo on the policy rate comes as a major relief for homebuyers who have seen their EMI swelling up by up to 17% as compared to April 2022.

Darshan added, "In the residential real estate segment, buyer sentiment has continued to be robust and this has resulted in home sales showing an appreciable rate of growth. With the apex bank maintaining lending rates this time around, this positive sentiment would get a further boost, reflected in improved sales traction and a healthy pipeline of supply in the ongoing quarter."

Along similar lines, Ravi Subramanian, MD & CEO, of Shriram Housing said, “consumers will heave a sigh of relief post RBIs rate pause since they were starting to feel the pressure of rising interest rates. More importantly, inflation has softened, though it remains slightly higher than RBI's tolerance level. It is expected that inflation will continue to ease and normalize within the RBIs tolerance limit. The unchanged repo rate will make it easier for home buyers to make purchase decision.”

Shriram Housing's CEO believes that this will provide a fillip to the affordable housing segment which is crucial for the growth of the economy. MPC's stance on repo rate will help in making housing finance solutions more accessible and affordable to the masses, especially those in the lower income segments.

However, Kalpesh Dave, Head – of Corporate Planning & Strategy, Star Housing Finance also explained that the pause in the REPO rate hike taken by the RBI, if at all provides a breather but should not be seen as a flattening of rate hike cycle as RBI in its statement has said that it remains focused on withdrawal of accommodative stance. Given continued turbulence internationally and possible slow down due to happenings in banking space in developed countries one expects the current cycle to continue."

This means the credit cost for retail and institutional borrowers is expected to remain high and this should be factored in their budgetary planning for FY2023-24. Dave added, for existing and new home buyers who have / shall avail(ed) finance for their units should brace for continued relatively higher outgo in the form of their monthly instalments. 

“One may continue to look options to refinance their existing debt obligations and even evaluate fixed rate loans if the cost benefit dynamics in the long run turn out to be positive for them,” Dave said. 

On an overall sector, Sankey Prasad, CMD, Colliers India said, India’s residential markets have maintained noted 15-year high sales maintaining their trajectory in the first quarter of 2023. This will bring in a new wave of optimism amongst home buyers resulting in higher property sales.

In Dave's view, the decision to keep the repo rate unchanged is positive news for the banking and NBFC sectors, as well as other sectors like real estate and infrastructure. He added, "We are pleased about the central bank's decision given the possible negative effects of a raise in the repo rate and its knock-on effects on both housing demand and supply. We believe this action would significantly enhance the market for affordable and mid-income housing, in particular.”

Further, Shiv Parekh, Founder hBits highlighted that it was important that the RBI evaluated the cumulative effects of the past hikes. Keeping the repo rate unchanged at 6.50% will add a wave of relief across industries especially the real estate sector; the sector has been in distress due to successive hikes for the last six months. Most industries were affected due to the high rate of working capital and real real estate was no exception.

According to Parekh, there needs to be a balancing act for growth along with tightening monetary policy to tame inflation. At this point of time, it was important to hold the rates. This will definitely act as the boost needed by the sector. Inflation has been high due to external factors as well. Now businesses will be able to generate more employment opportunities due to the growth effected through easy money availability.

Shishir Baijal, Chairman & Managing Director, Knight Frank India said, "From a real estate market perspective, the sector has weathered multiple home loan interest rate increases from a low of 6.5% to 8.75%, supported by favourable house purchase affordability and the strong desire towards home ownership. Therefore, a pause in any further rise in the lending rates should support the existing growth momentum in the housing sector.”

But a rate cut after the April 2023 policy will be cherries on top of the sector.

Ramani Sastri - Chairman & MD, Sterling Developers said, "A cut in the key rates going forward would be widely appreciated as low-interest rates have played a crucial role in the revival of overall real estate demand and improvement in the liquidity situation, which is vital for the sector. There is also great confidence in real estate as an asset class compared to other asset classes today and in the long term, we expect markets will see sustained growth. With recovery of the economy, we expect that the real estate sector will contribute a substantial share to overall economic development.

Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE,  also believes that the pause in rate hike is a sign that the RBI's monetary tightening is now in its final phase, which spells positive news for the real estate industry.


Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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First Published:6 Apr 2023, 10:32 PM IST
HomeMoneyPersonal FinanceRBI policy: Is pause in rate hike a good news for your home loan EMIs?

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