RBI Hikes And Tightening Could Slowdown Growth In Second Half Of FY 2022-23

The Reserve Bank of India today hiked repo rates by 50 basis points, following a 40 basis points hike in the Month of May, 2022. Interestingly, there was no increase in the cash reserve ratio, which was widely expected.

A series of hikes could slowdown economic growth rates, feel experts. "Our fear is that growth could see a serious deceleration in H2FY23 and FY24 on the back of such steep tightening and structural constraints," Nikhil Gupta, Chief Economist, MOFSL group.

"The RBI hikes the repo/SDF rate to 4.9%/4.65% today. This is higher than our forecast of 4.75/4.5% and the market consensus was for a hike of 40-50bps. The decision was taken unanimously by all MPC members. -- Interestingly, while the RBI increases its FY23 inflation forecast to 6.7%, GDP growth projection is kept unchanged at 7.2%. We wonder that if higher interest rates don't hurt growth, how will it help bring down inflation? It also suggests that most of the excess inflation is due to global/supply-side factors," adds Gupta.

The real estate sector is one sector that could feel the deepest impact as home loans become costlier and inputs costs soars. Says, Shishir Baijal, Chairman & Managing Director, Knight Frank India,

"A repo rate hike of 50 bps was imminent given the current inflationary trajectory and geopolitical concerns. Although the government has taken various measures to control domestic inflation such as food export restriction and cut in excise duty, prolonged war and spike in global crude oil price is still worrisome. From a real estate perspective, home loans are set to get costlier. Banks have already raised the interest rate on home loan by 30-40bps since the earlier repo rate hike by the RBI in May and now with the repo rate cumulatively higher by 90 basis point there will be further increase in interest rate for homebuyers. Rising interest rate along with elevated property construction cost and product price pressures could adversely impact on the real estate buyer's sentiment. We hope that economic recovery and household income growth will serve as a cushion for sustaining consumer demand in the face of this rate hike. Further, monetary policy tightening by central banks globally and any resolution on the prolonged Russia - Ukraine war will bring price stability".

According to Raghvendra Nath, Managing Director of Ladderup Wealth Management Private Limited inflation has been above the RBI's target range of 2-6% since the beginning of the year.

"With the ongoing Ukraine war and the COVID issues in China, the supply chain disruptions continue to affect global inflation. So, a rate hike of 30-50bps was expected by the RBI. The RBI has revised the inflation for FY23 to 6.7%, so inflation will continue to hurt the consumer pockets and company bottom-line for the coming quarters. We may see the food inflation coming down if the expectation of a normal monsoon this season turns out to be true. CRR was expected to be raised, but it seems RBI has decided to maintain the liquidity with banks for now."