RBI’s Judicious Decision to Raise Repo Rate by 35 Bps
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. However, as we have seen since the beginning of the rate hike cycle, latent demand has sustained, albeit with some moderation, in cumulative housing sales since the beginning of the rate hike cycle. The 35-bps rate hike by the RBI may be considered moderate in the current context and therefore considered a welcome move.
Tags : RBI repo rates Shishir Baijal Chairman & Managing Director Knight Frank India