RBI Hikes Repo Rate to 6.5%: Expected Impact on Home Loan Interest Rates and Property Prices

The Reserve Bank of India (RBI) hiked the repo rate by 25 basis points to 6.5 percent on Wednesday, in a widely expected move.[0] The central bank also revised down the inflation projection to 6.5 percent for 2022-23 against previous forecast of 6.7 percent, and expects GDP growth for 2023-24 to be 6.4 percent while growth for 2022-23 has been pegged at 7 percent.[1]

The rate hike of 25 bps is in line with expectations.[2] As repo rates are now at 6.5%, this could lead to a decrease in housing uptake as home loan interest rates rise. After five consecutive increases over the past year, the rates had already risen.[2] The recent two to three quarters have seen property prices inch up, adding to the financial burden on homebuyers in addition to home loan interest rates.[2]

Real estate consultant Anarock Chairman Anuj Puri said, “With repo rates now at 6.5 pr cent, there could be some repercussions on housing uptake as home loan interest rates will head further north. The rates had already crept up after five consecutive rate hikes over the last one year.[2] This will add to the financial burden on homebuyers as apart from home loan interest rates, property prices have also inched up in the recent past two to three quarters.[2]

He noted that an increase in home loan interest rates would have a significant negative effect on the availability of affordable housing.[3] Sanjay Dutt, MD & CEO, Tata Realty & Infrastructure Ltd, said, “From a real estate standpoint, the rate hike will push the home loan interest rate further. As a result, a slowdown in the home buying sentiment may be witnessed in the upcoming quarters. Developers should seek to offer financial assistance for the homebuyers to balance the business dynamics and give a boost to the ongoing momentum.”[3]

After examining the macroeconomic situation and its forecast, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) voted, with a majority of 4 out of 6, to immediately raise the policy repo rate by 25 basis points to 6.50%.[4] Consequent to this, the standing deposit facility (SDF) rate has been adjusted to 6.25%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.75%.[5]

0. “Is RBI's FY24 inflation forecast a bit too high?” Moneycontrol, 8 Feb. 2023, https://www.moneycontrol.com/news/business/economy/is-rbis-fy24-inflation-forecast-a-bit-too-high-10032121.html

1. “RBI projects FY24 GDP growth at 6.4 pc, in line with Economic Survey” msnNOW, 8 Feb. 2023, https://www.msn.com/en-in/money/topstories/rbi-projects-fy24-gdp-growth-at-64-pc-in-line-with-economic-survey/ar-AA17enNr

2. “Rate Hike As Expected, May Further Impact Affordable Housing Demand” Punekar News, 8 Feb. 2023, https://www.punekarnews.in/rate-hike-as-expected-may-further-impact-affordable-housing-demand

3. “Realtors See Rise In Home Loan Rate; Demand For Affordable, Lower Mid-Income Housing May Be Hit” Outlook India, 8 Feb. 2023, https://www.outlookindia.com/business/realtors-see-rise-in-home-loan-rate-demand-for-affordable-lower-mid-income-housing-may-be-hit-news-260494

4. “RBI repo rate hike: Best time to book your fixed deposits (FDs)? | Mint” Mint, 8 Feb. 2023, https://www.livemint.com/money/personal-finance/rbi-repo-rate-hike-best-time-to-book-your-fixed-deposits-fds-11675831878013.html

5. “RBI hikes interest rates, projects moderate inflation, growth in next fiscal” The Tribune India, 8 Feb. 2023, https://www.tribuneindia.com/news/business/rbi-raises-repo-rate-by-25-basis-points-to-6-5-per-cent-477801