RBI Hikes Repo Rate to 6.5%, Impact on Housing Segment Discussed
The Reserve Bank of India (RBI) on Wednesday hiked the repo rate by 25 basis points (bps) to 6.5 percent, as widely expected.[0] This hike will result in an increase in interest rates on home loans and may impact demand for affordable and lower mid-income housing segments, according to property developers and consultants.[1] The repo rate is the rate at which the central bank lends to banks.[2]
The RBI also revised down its inflation projection to 6.5 percent for 2022-23 against the previous forecast of 6.7 percent and expects GDP growth for 2023-24 to be 6.4%, while growth for 2022-23 has been pegged at 7 percent. The Economic Survey 2023-24 has estimated economic growth to be between 6-6.8%, with a real GDP growth rate of 6.5%.
Assuming the repo rate remains steady at 6.25 percent, the moderated rate of inflation is anticipated to lead to a real policy rate of around one percent.[3] Many industry experts said strong demand momentum in the residential segment would remain intact while some said there would not be much impact.[4]
However, pointing out that interest rates may breach the 9.5 percent mark after this hike, Anarock Chairman Anuj Puri said there might be some pressure on sales volumes in the affordable and lower mid-range housing segments, which are more cost-conscious.[4]
The Reserve Bank of India declared that it would maintain a close watch on inflation expectations since core inflation is predicted to remain stubborn.[5] The average rate of retail inflation is projected to be 6.5% in 2022-23, and to decrease to 5.3% in 2023-24.[6] Taking into account several factors and assuming an average crude oil price (Indian basket) of US$ 95 per barrel, Governor Das said inflation is projected at 6.5% in 2022-23, with Q4 at 5.7%.[7]
A majority of 4 out of 6 members of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) assessed the macroeconomic situation and outlook before deciding to raise the policy repo rate by 25 basis points to 6.50%, effective immediately.[8] The SDF rate has been revised to 6.25%, while the MSF rate and the Bank Rate have been adjusted to 6.75%. Consequently, these are the new rates.[9]
0. “Is RBI’s FY24 inflation forecast a bit too high?” Moneycontrol, 8 Feb. 2023, https://www.moneycontrol.com/news/business/economy/is-rbis-fy24-inflation-forecast-a-bit-too-high-10032121.html
1. “Rate Hike As Expected, May Further Impact Affordable Housing Demand” Punekar News, 8 Feb. 2023, https://www.punekarnews.in/rate-hike-as-expected-may-further-impact-affordable-housing-demand
2. “RBI raises repo rate by 25 bps, revises inflation and growth forecast” The New Indian Express, 8 Feb. 2023, https://www.newindianexpress.com/business/2023/feb/08/rbi-raises-repo-rate-by-25-bps-revises-inflation-and-growth-forecast-2545535.html
3. “MPC Meeting: Policy decision to be a close call” Moneycontrol, 6 Feb. 2023, https://www.moneycontrol.com/news/opinion/rbi-mpc-meeting-policy-bank-rate-decision-10016061.html
4. “Realtors See Rise In Home Loan Rate; Demand For Affordable, Lower Mid-Income Housing May Be Hit” Outlook India, 8 Feb. 2023, https://www.outlookindia.com/business/realtors-see-rise-in-home-loan-rate-demand-for-affordable-lower-mid-income-housing-may-be-hit-news-260494
5. “RBI Preview: Forecasts from six major banks, final strike” FXStreet, 7 Feb. 2023, https://www.fxstreet.com/news/rbi-preview-forecasts-from-six-major-banks-final-strike-202302070731
6. “RBI hikes repo rate to 6.5%, projects GDP growth at 6.4% for 2023-24” The Indian Express, 8 Feb. 2023, https://indianexpress.com/article/india/rbi-hikes-repo-rate-shaktikanta-das-8430961/
7. “RBI projects inflation to fall to 5.3% in FY24 » PSU WATCH | Latest PSU News, PSU News, Business News, Market …” PSU Watch, 8 Feb. 2023, https://psuwatch.com/rbi-projects-inflation-to-fall-to-5-3-in-fy24
8. “RBI repo rate hike: Best time to book your fixed deposits (FDs)? | Mint” Mint, 8 Feb. 2023, https://www.livemint.com/money/personal-finance/rbi-repo-rate-hike-best-time-to-book-your-fixed-deposits-fds-11675831878013.html
9. “RBI hikes interest rates, projects moderate inflation, growth in next fiscal” The Tribune India, 8 Feb. 2023, https://www.tribuneindia.com/news/business/rbi-raises-repo-rate-by-25-basis-points-to-6-5-per-cent-477801
