Highlights
- Repo rate hiked by 25 basis points
- Focus continues to be on controlling inflation
- Impact on real estate minimal
In its second bi-monthly monetary policy for the current fiscal, the Reserve Bank of India (RBI) raised repo rates by 25 basis points to 6.25%. This marks the first interest rate hike in four-and-a-half years.
The decision has come in the backdrop of rising inflation and weakening of the Indian currency with increasing interest rates in the US. Earlier this week, some of the leading banks, including the State Bank of India, Punjab National Bank, HDFC, and ICICI Bank increased their lending rates by up to 10 basis points, making home loans costlier for home buyers.
Commenting on the decision, Khushru Jijina, MD, Piramal Finance and Piramal Housing Finance said, “It is a mature and calibrated approach. This indicates that the RBI will remain vigilant on retail price levels in the coming months. RBI’s evaluation and the outlook for Indian economic growth are encouraging and looks positive for the economy.”
Impact on real estate
Industry stalwarts believe that this hike will not have a major impact on the real estate sector.
Terming the rate hike as ‘justified’ on account of inflationary trends, Niranjan Hiranandani, President, NAREDCO, said, “The hike of 0.25 basis points in the repo rate would not make a major difference to real estate.”
However, he added that in the long run, he would prefer rates coming down.
Reiterating the same, Ramesh Nair, CEO and Country Head, JLL India said, “The hike may seem to dampen sentiments in the market, but the real estate sector may have little or no impact. As the majority of home loans, these days, are on floating rates, any rise and fall in home loan rates do not impact the performance of the residential real estate sector.”
Moreover, home buying decisions are generally not taken based on fluctuations in home loan rates.
On the contrary, Manoj Gaur, Vice President CREDAI-National & MD, Gaurs Group opines that this hike will now bring in another wave of low sentiments in the market.
“The start of the financial year had been smooth, and some incentives could have become a big sentiment driver for the entire economy. However, we expect that the markets will settle down before the next policy review and give the apex bank a chance to rethink over this increase,” Manoj said.
The positive side
Among other reforms announced, home loans up to Rs 35 Lakh would be considered as priority sector lending. “This would give a boost to the affordable housing sector and help in the economic growth,” said Khushru.
Further reading:
Interested in reducing your home loan interest rate with or without the help of the RBI? Read our tips here.