21 Mar 2024 , 05:46 PM
In its first MPC meeting for the financial year 2023-24, The RBI is expected to hike the repo rate by 25bps as inflation continues to be a lingering problem. The course of rate hike is more likely to be aligned with the stance taken by key central banks such as the US Fed.
With the recent crude oil production cut by the OPEC and Russia consumer inflation is unlikely to ebb anytime soon. Consumer inflation in the core categories (ex-food and fuel) as well has stayed persistently high above 6% for the last 22 months.
In FY23, the RBI cumulatively hiked the repo rate by 250bps from 4% to 6.5%., levels witnessed in Jan 2019. From a housing market perspective, despite a sharp rise in repo rate which has immediately transmitted into lending rates, the housing demand has continued to sustain thus far. The outstanding home loans grew by 15% in FY23 (Until February 2023).
However, any further rate hikes coupled with elevated prices could potentially dampen the purchasing capacity of the consumers, which in turn can curtail demand. Therefore, we remain cautious of the impact of prolonged rate hikes on the housing sector as well as overall consumer demand in the economy.
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