In its upcoming policy meeting, we expect the RBI to hike repo rate moderately by 20 to 25 basis points (bps) as inflation has softened to below 6% in the last two months. With inflation coming under control and reduced pace of US Fed rate hike, the focus of the RBI is now likely to shift towards maintaining growth, which can moderate in the coming financial year owing to global uncertainties. Thus, moderation in the pace of repo rate hike is pertinent to keep domestic demand afloat to support the economy.
So far, the cumulative repo rate hike stands at 225 bps, and the lending rate as measured by MCLR rate is up 140 bps; accounting to about 60% of repo rate hike transmission into lending rate. Thus, borrowing costs have increased across product categories including home loans. The Knight Frank Affordability index of the home buyers has worsened marginally by average 1.4% in this rate cycle and hence remains supportive of demand. Although, consumers’ inclination towards home purchases have remained resilient in the last few months, there has also been some signs of moderation in sequential growth in home sales as hinted by the early indicators.
Thus, we hope that moderation in policy rate hike intensity will lift homebuyer and industry sentiment and help maintain the housing sales trajectory in the country.
