RBI MPC: 50 Bps Rate Hike Will Make Home Loans Dearer Soon, Says Anarock

As commercial banks link their retail loans to repo rate, the hike in rates will increase interest rates, making home loans costlier

Repo rate hike could impact residential sales to some extent during the upcoming festive quarter, particularly in the affordable and mid-range housing segments, according to Anarock.

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The Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) on Friday raised the repo rate (repurchase rate) by 50 basis points for the fourth time in a row. After the announcement, the new repo rate stands at 5.9 per cent, while the reverse repo rate continues to stand at 3.35 per cent.

As commercial banks link their retail loans to repo rate, the hike in rates will increase interest rates, making home loans costlier. Therefore, buying houses and vehicles will become costlier following the rate hike.

According to Anarock Group Chairman Anuj Puri, the 50 bps hike by the RBI was expected, especially since no global economy has hinted towards any kind of moderation.

Inflation continues to ravage almost all economies, and India is no exception. Anarock's recent consumer sentiment survey also highlighted that at least 61 per cent respondents saw high inflation as a major concern for them, seriously impacting their disposable incomes.

Shaktikanta Das in his MPC statement said, "World has been confronted with one crisis after another. It has witnessed two major shocks in last 2.5 years. Aggressive monetary policy action is the third shock in the world. India has withstood shock from coronavirus pandemic and the conflict in Ukraine." He said that inflation expected to remain elevated at 6.7 per cent for FY23.

Anarock in a statement on Friday said that with this repo rate hike, home loans will get dearer soon. This could impact residential sales to some extent during the upcoming festive quarter, particularly in the affordable and mid-range housing segments.

The hike in home loan rates will be in addition to the other increasing costs such as inflationary trends of construction input costs. With the overall acquisition cost increasing further, developers will have to seriously consider doling out targeted offers and discounts to boost sales during the critical festive quarter.

The silver lining is that only when the home loan interest rates breach the 9.5 per cent mark will housing sales see a ‘high impact’. If rates remain between 8.5-9 per cent, the impact is expected to be moderate.