RBI Politics: How a 50 bps rate hike will affect homebuyers and home loan EMIs


In its August policy, RBI raised the repo rate by 50 basis points, bringing the rate to 5.40%. In addition, the Standing Deposit Facility (SDF) rate is 5.15% and the Marginal Standing Facility (MSF) rate and discount rate are 5.65%.

In addition, the MPC decided to remain focused on withdrawing accommodation to ensure that inflation remains on target going forward while supporting growth.

RBI’s main objective on the interest rate hike is to rein in rising inflation which remains above its 6% comfort limit for the sixth consecutive month. However, the latest rate hike was higher than expected.

Following the RBI Policy, ICICI Bank announced on its website, “ICICI Bank External Benchmark Lending Rate” (I-EBLR) is referenced to the RBI Policy Repo Rate with a markup over the Repo Rate. I-EBLR is 9.10% papm as of August 5, 2022.”

In addition, the PNB also made a 50 base hike in its benchmark lending rate. In its regulatory filing, the bank said that in the event of a repo rate increase by RBI, the Repo Linked Lending (RLLR) rate was revised from 7.40% to 7.90% with effect from 6 august.

The above rise in benchmark lending rates means that RLLR-linked term loans will also see their interest rates rise.

With this, monthly equivalent payments (EMI) on home loans will become expensive for borrowers.

Speaking on homebuyer sentiment, Surendra Hiranandani, Chairman and Managing Director of House of Hiranandani, said: “This year, repo rates have been gradually rising to maintain momentum in the fight against inflation. The MPC has raised repo rates by 50 basis points in June this year.And, again, the MPC’s decision to raise repo rates again by 50 basis points indicates that inflation is here to stay for some time. Rising repo rates will have an effect on interest rates as well as the attitude of home buyers.This year has seen a steady increase in home sales, but the continued rise in mortgage rates can overwhelm a buyer. In my view, consumers should be patient and trust the RBI to fight inflation and revitalize the economy.

Hiranandani added that despite the RBI’s strategic decision to raise repo rates to control inflation, the property buyer seems to be less swayed by the most recent increases. Even with the rate hikes, last quarter’s performance was solid, reflecting the increased movement of homebuyers to purchase homes. A recent report on current residential sales figures highlights the boost the quarter saw primarily from the luxury segment. The higher sales levels are the result of growing demand for larger properties, restored buyer confidence and increased interest in the NRI.

However, the latest 50 basis point hike in the repo rate is expected to impact both home buyers and home loan EMIs for a short term period.

Ramani Sastri – Chairman & MD, Sterling Developers said: “RBI’s decision could have an immediate impact on buying a home in the short term, as the recent back-to-back hikes in repo rates have already added to the cost acquisition rate of buyers. Rising interest rates along with high housing construction costs and commodity price pressures could negatively impact housing sentiment as buyers are likely to invest in their dream homes in holiday season forecast. users and this decision will have a negative impact on India’s interest-rate sensitive real estate sector.”

“However, despite the odds, we remain hopeful as there is significant pent-up demand from a very broad base of the population and first-time home buyers. Many high-frequency indicators also suggest the economy recovers robustly and this will have a positive influence on real estate,” Sastri added.

Meanwhile, Lincoln Bennet Rodrigues, chairman and founder of The Bennet and Bernard Company, said the impact of the rate hike will be mostly on the affordable housing side, which is driven primarily by sentiment and particularly buyers. of a first home who are heavily dependent on home loans. This decision will not change much in the luxury segment because the demand from buyers in this segment exceeds these considerations. Additionally, the affordability and disposable incomes of new age homebuyers are much better today than a few years ago due to increased job and wage growth in most areas. sectors of the country, which is a silver lining for the sector.

“The current environment of repo rate hikes is unlikely to last forever, and eventually rates are expected to fall again. purchase after the pandemic,” Rodrigues added.

In FY23, to rein in inflationary pressures, RBI first raised the repo rate by 40 basis points in May and then by 50 basis points in June. The latest 50 basis point hike – brings the total hike to 140 basis points in the political repo rate.

RBI should continue to increase the repo rate in the coming monetary policies. If so, home loan EMIs could continue to get more expensive and take a big chunk out of borrowers’ pockets.

Bankers see the RBI repo rate reaching 6% by the end of this year.

Yes, the Bank’s economists said that “with the path of CPI inflation pointing downwards, we expect the RBI to moderate the pace of the hikes and raise the repo rate by 25-35 basis points in September and 25 basis points in December to 5.90-6.00% and will pause thereafter to assess growth-inflation dynamics.”

“We expect the RBI to continue its rate hikes in the coming policies, taking rates to 5.75% by the end of the year,” said economists at HDFC Bank.

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