RBI Monetary Policy: Rising rates likely to drive up mortgage rates, EMIs could become costlier

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Over the past two policies, RBI has increased the repo rate by 90 basis points. The first increase was 40 basis points in May and later 50 basis points in June.

The repo policy rate currently stands at 4.90%. In addition, the standing deposit facility (SDF) rate stands at 4.65%, and the marginal standing facility (MSF) rate and the discount rate at 5.15%.

Currently, CPI inflation in India is 7.01% in June 2022, which has moderated slightly from 7.01% in May. This year, in April, inflation peaked at 7.79%. With that, inflation remained above the RBI’s upper 6% limit for the sixth month in a row.

Many banks raised their mortgage rates from May to July this year. The majority of lenders have tied their lending rates to the repo rate.

The latest data from RBI shows that the weighted average lending rate (WALR) on new SCB rupee loans increased by 8 basis points (bps), from 7.86% in May 2022 to 7.94% in June 2022. In addition, the 1-year median incremental cost of financing Lending Rate (MCLR) for SCBs decreased from 7.40% in June 2022 to 7.55% in July 2022. In addition, the WALR on the Outstanding SCB rupee loans increased by 14 basis points to 8.93% in June 2022.

What rate hike can we expect in August policy?

Sumit Chanda, Founder and CEO of JARVIS Invest, said: “While there have been signs of moderating inflation, with Brent still above the $100 mark and Rupee falling, we can expect the RBI to raise the repo rate by around 50 however what should be noted is their tone which has softened over the last couple of weeks where they don’t want compromise on growth to fight inflation. They prefer fiscal policies to address price pressure rather than act to reduce liquidity in the system in order to suppress demand.”

While Shivam Bajaj – Founder and CEO of Avener Capital said, “Two critical factors would determine MPC’s stance on rates at this meeting, if inflation continues to remain beyond RBI’s comfort zone and TPS collections, as well as PMI, are improving even after rate hikes by RBI in the first part of this year, which would give it the confidence to continue its hawkish stance.This could align market expectations towards a rate hike of about 30 basis points.”

Further, Suvodeep Rakshit, Senior Economist at Kotak Institutional Equities, said, “We believe the RBI will raise the repo rate by 50 basis points to recognize (1) high but gradually declining inflation, (2) being in step with global monetary policy while reacting to domestic macroeconomic conditions, (3) responding to external sector pressures by managing interest rate differentials, and (4) continuing to precipitate rate hikes. pencil in the repo rate to 5.75% by the end of fiscal year 2023.”

Furthermore, Rakshit added that the RBI’s deliberations will likely focus on (1) the global monetary policy cycle and global growth outlook, (2) external sector imbalances manifesting in pressures on the INR , (3) the recent easing of global commodity prices, and (4) domestic inflation and growth trajectory.

“We note that since the June policy, the Fed has surprised on the upside with hikes of 150 basis points from the June and July policies with risks of interest rate differentials tightening. We believe that if domestic inflation concerns may be slightly lower, external sector concerns cautious,” Rakshit said.

Will mortgage rates be affected by the rise in the repo rate?

Ravi Subramanian, MD and CEO, Shriram Housing Finance, said: “The MPC in its August policy announcement is likely to raise rates upwards by 35 basis points, however, I do not expect a hike of giant size like other major central banks i.e. US Fed or ECB Indeed, in the absence of new shocks, economic conditions in India have improved slightly and hence an aggressive rate path will not In fact, any outsized rise in the repo rate will work against the palpable recovery of productive sectors like housing and construction which have the highest backward and forward linkages in the economy. Inflation path is above the RBI’s comfort level of 4% (+/-2%).”

“Therefore, the MPC will opt for smaller doses of interest rate increases until the general price level falls within the RBI’s comfort range. Such guidance will temper future concerns over the upside. rates and soothe market nerves. Additionally, I expect the MPC to change its policy stance from ‘calibrated tightening’ to ‘neutral’ in its next resolution,” Subramanian added.

According to Ashish Khandelia – Founder of Certus Capital of Earnnest.me, RBI has already hinted at withdrawing its dovish policy and has raised the repo rate by 90 basis points since May 4, 2022. These hikes have brought lending rates closer real estate by ~7.50%. Another hike expected tomorrow will boost mortgage rates, with year-end end rates likely closer to 8% +/-. Continued residential momentum in the first quarter demonstrated that current mortgage rates are still in the acceptable zone and we can expect this momentum to continue even if rates reach ~8%.

Here are some of the home loan rates offered by major banks:

SBI Home Loan Interest Rates:

SBI charges interest rates on home loans based on borrowers’ credit scores. For regular home loans, SBI offers a rate of 7.55% on credit scores of 800 or higher, while the rate is 7.65% on scores between 750 and 799. credit scores 700-749, the interest rate is 7.75%, and the rate is 7.85% on scores between 650 and 699.

The interest rate is 8.05% on credit scores from 550 to 649. Also, the bank offers a rate of 7.75% on the NTC/NO CIBIL/-1 score.

The average interest rate for home loans is 7.37%.

Interest rates are floating in nature and linked to the repo rate.

HDFC Bank home loan interest rates:

The retail prime rate (RPLR) of the largest private lender is currently 16.05%.

For home loans in the amount of 30 lakh, the bank offers an interest rate of 6.75-7.25% to salaried women and 6.80%-7.30% to others.

On a home loan between 30.01 lakh to 75 lakh, the rate is 7-7.50% for employed women and 7.05-7.55% for others. While the rate is 7.10-7.60% for female employees and 7.15-7.65% for others with mortgages above 75 million.

These interest rates are similar for independent borrowers.

ICICI Bank home loan interest rates.

For salaried borrowers, ICICI Bank offers interest rates between 7.60 and 8.05% on home loans up to 35 lakh, while the rate is 7.60-8.20% on the above loans 35,000,000 75,000,000; and the rate is 7.60-8.30% on senior loans 75 million.

RR is the lending rate linked to the repo rate.

At the same time, for self-employed borrowers, the private banker offers a rate of 7.70 to 8.20% on home loans up to 35 million. The interest rate is between 7.70 and 8.35% on home loans above 35,000,000 75 lakh, and the rate is 7.70-8.45% on above loans 75 million.

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