The Reserve Bank of India (RBI) on September 30, 2022, increased the repo rate by 50 basis point amid retail inflation rising above its tolerance zone and the India rupee breaching the 80-mark against the US dollar.
As the six-member monetary policy committee headed by governor Shaktikant Das is seen upping its hawkish tone to sacrifice growth in order tame stubbornly high inflation, India’s real estate sector is likely to be one of the worst affected.
The widely expected move by India’s banking regulator would result in an increase in home loan lending rates when most home purchase decisions are likely to see culmination with the festive season kickstarting on September 26, 2022—the first date of the 9-day festivities known as Navratra. The RBI has already increased the repo rate by 140 basis points since May to 5.4%. Subsequent to this, Most banks in India have already increased home loan interest rates, some multiple times, to bring those above 7%.
Considering the global shifts in policy environment, experts forecast the rate hike to continue for at least two upcoming policy announcements.
Recall here that the RBI had last lowered the repo rate in March 2020 to cushion the impact of the Covid-induced slowdown and maintained status-quo in the benchmark lending rate for almost two years before increasing it on May 4, 2022. Meanwhile, retail inflation has hit 7% while the rupee has weakened 9.5% on-year since the last policy meet in August.
“The rate hike may impact the real estate sentiment when buyers are likely to invest in their dream homes during the ongoing festive season. Home loan interest rates may increase now, leading to short-term turbulence on overall housing demand. The recent consecutive repo rate hikes had already added to buyers’ overall acquisition cost. With gradually increasing loan rates, homebuyers’ apprehension could set in quickly and they might adopt the wait-and-watch sentiment,” says Ramani Sastri – Chairman & MD, Sterling Developers.