RBI 50bps Rate Hike Can Have Moderate Impact On Housing Sales: Analyst

The RBI Monetary Policy Committee (MPC) announced its upcoming policy measures today, on August 5, declaring a repo rate hike of 50bps. In the official statement, RBI Governor Shaktikanta Das stated that the central bank is increasing the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points (bps) to 5.40% with immediate effect. Consequently, the standing deposit facility (SDF) rate stands adjusted to 5.15%, and the marginal standing facility (MSF) rate and the Bank Rate to 5.65%. This decision is going to make the loans costlier for Indian citizens, however, savings schemes and fixed deposits are expected to be more profitable further. Home loans, car loans, and personal loans interest rates can be hiked by the bank after this 50 bps rate hike, which can marginally impact housing or car sales.

Commenting on the housing sales, Anuj Puri, Chairman, Anarock Group told the media, "A rate hike was expected, but the expectation was for a maximum of 35 bps. The hike by 50 bps is definitely on the higher side, and home loan lending rates will now edge further into the red zone. This is the third consecutive rate hike in the last two months and finally marks the end of the all-time best low-interest rates regime - one of the major factors that drove housing sales across the country since the pandemic. This whammy comes along with the inflationary trends of primary raw materials, including cement, steel, labour, etc., that have recently led to a rise in property prices. Together, these factors - rising home loan rates and construction costs - will impact residential sales that did reasonably well in the first half of 2022. As per ANAROCK Research, approx. 1.85 lakh units were sold in H1 2022 across the top 7 cities."

The Repo rate is known as the interest rate charged by the central bank on the cash borrowed by commercial banks. So, the recent repo rate hikes by RBI to control inflation, aiming to squeeze liquidity in the economy, will probably influence the public or private commercial banks to raise the interest rates on loans, which the common citizens will have to bear. On the stock markets, today, Nifty PSU banks stood at 2,872.45 points gaining by 1.11%, and Nifty private banks stood at 19,312.15 points gaining by 0.73%, till 11.38 am.

Commenting on the country's mounting inflation ground, later Puri added, "The repo rate now stands at 5.4%, thus reaching the pre-pandemic levels. While inflation has partially eased as compared to the surge in April, it continues to be above the RBI's target."