'Rate hike can have an adverse impact on home sales'
December 07, 2022 14:24
The RBI on Wednesday expectedly slowed the pace of increase in borrowing costs in signs that rates may be nearing the peak, even as it reiterated its resolve to fight inflation that has stayed above the comfort zone for 10 straight months. The RBI hiked the key repo rate by 35 basis points, the fifth straight increase since May, raising prospects of EMIs for home, auto and other loans rising further.
Reactions to the RBI rate hike:
Deepak Agrawal, Chief Investment Officer, Debt Fund, Kotak Mahindra Asset Management Company: RBI hiked repo rate by 35 bps in line with market expectation with a 5:1 vote. The stance was maintained at "withdrawal of accommodation' with 4:2 vote. MPC was of the view that further calibration action is warranted to keep inflation expectation anchored, to break core inflation persistence and contain a second round effect.
Cyrus Mody, Managing Partner, Viceroy Properties: A broader softness in inflation and steady economic growth is the key reason behind the RBI softening its rate hike this time, as compared to the previous hikes of 50 and 75 points.
Having said that, we believe the repo rates have peaked with the current hike, and that the central bank is likely to go on a long pause and monitor macroeconomic trends before deciding its next course of action. This may create room for a potential possibility of the RBI slashing rates by the end of the next CY.
Having said that, we believe the repo rates have peaked with the current hike, and that the central bank is likely to go on a long pause and monitor macroeconomic trends before deciding its next course of action. This may create room for a potential possibility of the RBI slashing rates by the end of the next CY.
This rate hike can have an adverse impact on home sales. However, it seems unlikely considering how we are witnessing strong traction, as most buyers are looking for self-use and not investment. Going forward, we expect the demand for projects developed by reputed names to continue witnessing strong demand with pricing power.
Shishir Baijal, Chairman & Managing Director, Knight Frank India: 'The RBI has been extremely judicious in their decision to raise repo rate by 35 bps as against the previous revisions, which were much sharper. The move is a balanced approach towards continued economic growth despite the higher than tolerance level of inflation.
This hike in the repo was within expectation as the inflation has reduced and is expected to further reduce in the next few quarters, while the concern around domestic economic growth emerges amidst the current global vulnerabilities.
Since the rate hike cycle in May 2022, home loan products have become expensive by around 150 bps before today's hike. The lending rates have risen significantly, especially for the loans linked to External Benchmark based Lending Rate (EBLR) where there has been a 100% transmission of repo rate. Loan products linked to MCLR rate are also up by around 108 bps during this period.
This hike will further impact EMIs and reduce home affordability. Simply based on the interest rate impact in this rate cycle, the Knight Frank Affordability Index has recorded a cumulative deterioration of an average of 3% across the country.
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