RBI monetary policy reaction: Shishir Baijal, Chairman & Managing Director, Knight Frank India

8 Feb 2023 , 12:27 PM

The 25bps hike in repo rate announced by the RBI is a well-balanced approach between handling inflation and economic growth. This was expected by the industry as inflation rate has remained above the tolerance band, though it has softened in the last few months. This hike will further help moderate inflation in the economy. A 25bps hike in Standing Deposit Facility (SDF) and Marginal Standing Facility (MSF) rate respectively to withdraw surplus liquidity would further support in stabilizing inflation in the economy.

Since the beginning of the rate hike cycle, which began in May 2022, the RBI has hiked its repo rate by 250 bps. With an MCLR rate of 8.4%, about 60% of the repo rate hike, so far, has already transmitted into the lending rates. Thus, the borrowing costs have significantly increased across the product categories including the housing sector. Post today’s rate hike, borrowing costs could be expensive by another 10 – 15 bps, on an immediate basis.

The impact of interest rate hike on the housing sector has been limited. The Knight Frank affordability index has deteriorated marginally by an average 1.4% over the last year. Demand for home loans has remained strong during the last year, as seen in 16% growth in December 2022. We hope that this rate hike will not adversely impact consumer sentiments towards home purchases in the coming financial year.

The RBI also shared that the GDP growth has moved upwards to 7% from the previous estimates of 6.8%. In terms of growth, India remains a bright spot while other key economies face recession risks.