[ecis2016.org] The 50-basis point hike in rate is on widely expected lines.
The Reserve Bank of India (RBI) on August 5, 2022, increased the repo rate by 50 basis points. The move by the apex bank, has now brought RBI’s benchmark lending rate, at which banks borrow funds from the banking regulator, at 5.40%.
You are reading: RBI hikes repo rate to 5.40%, brings it back to pre-pandemic level
Polls conducted by several think tanks showed experts were unanimous in their opinion about the RBI hiking the repo rate on August 5, 2022, as it battles the twin issues of high inflationary pressure and a consistently depreciating rupee.
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After holding the repo rate at 4% for nearly 2 years, the RBI started to increase it in May this year with a 40 basis point hike, boosting it further by another 50 basis point increase in June. With this appreciation, the repo rate is back at its pre-pandemic level, highest since August 2019.
“The MPC’s decisions have been in line with our expectations. Given the increasing external sector imbalances and global uncertainties, the need for front-loaded action was imperative. We continue to see a 5.75% repo rate by December 2022,” said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank.
The hike in the repo rate, which would consequently increase home loan interest rates, would substantially increase the cost of borrowing for India’s middle class that relies heavily on housing finance for property purchase. After the twin hikes by the RBI in May and June, nearly every bank in the country has announced an increase in home loan interest rates, marking an end to the record-low rates that hovered below 7% before the RBI move in May, 2022.
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“The RBI move might have an immediate impact on home buying for a short-term as the recent consecutive repo rate hikes have already added to buyers’ overall acquisition cost. Rising interest rates, along with elevated property construction cost and product price pressures, could adversely impact the real estate sentiment when buyers are likely to invest in their dream homes foreseeing the festive season,” says Ramani Sastri, chairman & MD, Sterling Developers.
The real estate sector had just started seeing gradual recovery across key property markets, driven primarily by end-users and this decision will have adverse impact for the interest rate-sensitive Indian real estate sector, he adds.
“Investment philosophies will change as a result of the additional increase of the repo rate of 5.4% to beat inflation. As opposed to equity products, investors will seek to diversify into fixed income high yield assets like bonds, and income-producing commercial real estate. Investors’ best defense against inflation will be diversification,” said Kenish Shah, co-founder, PropReturns.
Source: https://ecis2016.org/.
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Source: https://ecis2016.org
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