RBI policy: How a 50 bps rate hike will impact homebuyers, home loan EMIs

In the policy of August, RBI Long walk repo rate 50 basis points – accounting for 5.40%. In addition, the Permanent Deposit Facility (SDF) is at 5.15% and the Margin Base Rate (MSF), and the Bank Rate is at 5.65%.

In addition, the MPC decided to continue to focus on housing recapture to ensure that inflation remains within target going forward while supporting growth.

The RBI’s main focus on raising rates is to tame rising inflation, which has remained above its comfortable limit of 6% for the sixth straight month. Although, the most recent rate hike was higher than expected.

Following the RBI policy, ICICI Bank announced on its website, “ICICI Bank External Benchmark Lending Rate” (I-EBLR) referenced to the RBI Policy Repo Rate with an increase up against Repo Rate. I-EBLR of 9.10% papm effective August 5, 2022.”

In addition, PNB also raised the benchmark lending rate to 50 basis. In its regulatory filing, the bank said, after RBI increased the Repo Rate, the Repo Linked Lending Rate (RLLR) was adjusted from 7.40% to 7.90% effective from August 6.

The increase in the benchmark lending rate above means that term loans related to the RLLR will also have a change in their interest rates.

With that, the equivalent monthly installment (EMI) on home loans will become expensive for borrowers.

Talking about homebuyer sentiment, Surendra Hiranandani, President and CEO, House of Hiranandani said: “This year, repo rates are gradually climbing to maintain momentum in the fight against inflation. MPC. raised the repo rate by 50 basis points in June this year, once again, MPC’s decision to raise the repo rate to 50 points suggests that inflation will continue to persist for some time. This year, home sales have been steady, but the continued rise in mortgage rates can overwhelm buyers. I, must be patient and have faith in the RBI to fight inflation and revive the economy.”

Hiranandani added that despite the RBI’s strategic decision to raise repo rates to control inflation, property buyers appear to be less affected by the most recent hikes. Even with interest rates rising, recent quarter results have been strong, reflecting the increased movement of homebuyers to buy homes. A recent report on existing home sales highlighted the growth the quarter saw mainly from the luxury segment. Higher premiums are the result of increased demand for larger properties, a recovery in buyer confidence and higher NRI rates.

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

Ramani Sastri, President & MD, Sterling Developers said, “The RBI move could have an immediate impact on home purchases in the short term as recent consecutive buyback rate hikes have increased adding to the overall acquisition cost of buyers.Increasing interest rates coupled with rising real estate construction costs and product price pressures can negatively impact real estate sentiment as buyers have the ability to invest invest in their dream home ahead of the festive season. users and this decision will have a detrimental impact on the interest-sensitive Indian real estate sector.”

“However, despite the divergence, we remain hopeful because of the significant pent-up demand from the very large population base and first-time homebuyers. Many high-frequency indicators also point to the economy. is recovering strongly, and this will have a positive effect on real estate,” added Sastri.

Meanwhile, Lincoln Bennet Rodrigues, President & Founder, The Bennet and the Bernard Company, thinks the impact of rate hikes will come mainly from the affordable housing side, driven mainly by sentimental and especially first-time homebuyers, who rely heavily on home loans. This decision will not make much of a difference in the luxury segment as the needs of homebuyers in this segment are falling outside of these considerations. In addition, the affordability and disposable income of new-age homebuyers is much better today than it was a few years ago due to job and wage growth in most industries in the country and this is an opportunity. for this field.

“The current environment of repo rate hikes is not expected to last forever, and eventually, rates are likely to fall again. We believe the positive sentiment will continue in the high-end segment. level is driven by changes in purchasing patterns after the pandemic,” added Rodrigues.

In FY23, to ease inflationary pressures, RBI raised the redemption rate by 40 basis points for the first time in May and another 50 basis points in June. The most recent increase was to 50 basis points. – bringing the total increase to 140 basis points in the policy repo rate.

The RBI is expected to continue raising the repo rate in the upcoming monetary policies. If that’s the case, home loan EMIs could continue to get more expensive before creating some money in the borrower’s pocket.

Bankers expect the RBI repo rate to hit 6% by the end of the year.

“Given the downward trajectory of CPI inflation, we expect the RBI to adjust to the pace of growth and increase the repo rate to 25-35 bps in September and 25 points in the coming months,” the Yes Bank economists said. December to 5.90-6.00% and pause after that. assess the growth-inflation dynamics.”

“We expect the RBI to continue to raise rates in the coming policies with rates up to 5.75% by year-end,” said HDFC Bank economists.

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