RBI Policy: How 50 bps rate hike will affect home buyers, home loan EMIs

In August policy, reserve Bank of India hiking repo rate By 50 basis points – taking the rate to 5.40%. In addition, the Permanent Deposit Facility (SDF) rate is 5.15% and the Marginal Standing Facility (MSF) rate, and the Bank Rate is 5.65%.

Additionally, the MPC decided to focus on the return of housing to ensure that inflation remains within the target while supporting growth.

RBI’s main focus on interest rate hikes is to contain rising inflation, which has remained above its comfort limit of 6% for the sixth consecutive month. However, the latest rate hike was higher than expected.

Following the RBI policy, ICICI Bank announced on its website, “ICICI Bank External Benchmark Lending Rate” (I-EBLR) refers to the RBI Policy Repo Rate with Mark-up on Repo Rate. The I-EBLR is 9.10% ppm with effect from August 5, 2022.”

Besides this, PNB also increased its benchmark lending rate by 50 basis points. In its regulatory filing, the bank said, on the hike in the repo rate by the RBI, the Repo Linked Lending Rate (RLLR) has been revised from 7.40% to 7.90% with effect from August 6.

The above hike in benchmark lending rates means that RLLR linked term loans will also see an upward shift in their interest rates.

With this, the Equated Monthly Installment (EMI) on the home loan will become costlier for the borrowers.

Talking about the sentiment of home buyers, Surendra Hiranandani, Chairman and Managing Director, House of Hiranandani said, “This year, there has been a gradual increase in the repo rates to maintain the momentum in the fight against inflation. The MPC has Repo rates have been hiked by 50 basis points in June this year. And, once again, MPC’s decision to hike repo rates by 50 basis points again indicates that inflation is here to stay for some time. The increase in repo rates will have an impact on the interest rates as well as the attitude of home buyers. This year has seen a steady increase in the sales of homes, but the ongoing rise in mortgage rates can overwhelm a buyer. In my opinion, Consumers should be patient and have faith in RBI to counter inflation and revive the economy.”

Hiranandani said, despite RBI’s strategic decision to hike repo rates to control inflation, real estate buyers have been less affected by the most recent hike. Even with the rate hike, the performance in the recent quarter has been strong, reflecting the increasing movement of homebuyers. A recent report on current residential sales numbers highlights the growth witnessed in this quarter primarily from the luxury segment. Higher premium sales levels are a result of increased demand for larger properties, recovery of buyer’s confidence and higher NRI interest.

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

Ramani Shastri – Chairman and Managing Director, Sterling Developers said, “The RBI move could have an immediate impact on short-term home buying as the recent consecutive repo rate hikes have added to the overall acquisition cost of buyers. Rising interest Rates as well as increased property construction cost and product price pressures may adversely affect the real estate sentiment, when buyers are likely to invest in their dream homes, which the real estate sector has seen in view of the festive season. Major property markets had started to see a gradual recovery, which was mainly driven by end-users and this decision will have an adverse impact on the interest rate sensitive Indian real estate sector.”

“However, despite the odds, we are still optimistic as there is a very large population base and significant demand from first-time home buyers. Several high frequency indicators are also suggesting that the economy is recovering in a strong manner. and This will positively impact real estate,” Shastri said.

Meanwhile, Lincoln Bennett Rodrigues, president and founder, The Bennett, and Barnard Company, said the impact of the rate hike would be primarily on the affordable housing side, driven primarily by sentiment, and especially by first-time home buyers. who are heavily dependent. on home loan. This decision will not make much difference to the luxury segment as the demand for home buyers in this segment is beyond these factors. Also, the affordability and disposable income of new age home buyers are much better today than they were a few years back due to rising job and salary growth in most regions of the country and this is a ray of hope for the sector.

Rodrigues said, “The current environment of repo rate hikes is not expected to last forever, and eventually, rates are likely to come down again. We believe this is driven by a change in buying patterns after the pandemic.” The positive sentiment will continue in the luxury segment.” added.

In FY23, to ease inflationary pressures, RBI for the first time increased the repo rate by 40 basis points in May and 50 basis points in June. The latest increase of 50 basis points – takes the total increase in the policy repo rate to 140 basis points.

The RBI is expected to continue increasing the repo rate in the upcoming monetary policies. If this is the case, then home loan EMIs can be costly to form a major chunk in the pockets of the borrowers.

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

Economists at Yes Bank said, “Pointing to the downside of CPI inflation, we expect the RBI to reduce the pace of hikes and raise the repo rate by 25-35 bps in September and by 25 bps in December to 5.90-6.00%.” Will do it and then stop. Assess the growth-inflation dynamics.”

HDFC Bank economists said, “We expect the RBI to continue with the rate hikes in the coming policies and hike rates by up to 5.75% by the end of the year.”

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