RBI Hikes Repo Rate To 5.90%

The Reserve Bank of India (RBI) on September 30, 2022, increased the repo rate by 50 basis points to bring it at 5.90%. This is the fourth time the central bank has increased the repo rate since may 2022 to achieve the twin targets of keeping a stubbornly high inflation in check and supporting a depreciating rupee.

Central banks across the world have taken similar measures to battle high levels of inflation caused by the continuation of the Russia-Ukraine war.      

***

RBI Hikes Repo Rate To 5.40%

The Reserve Bank of India (RBI) on August 5, 2022, increased the repo rate by 50 basis points. The move by the apex bank, which has now brought RBI’s benchmark lending rate at 5.40%, will make home purchases costlier for prospective homebuyers. The decision will also result in housing EMIs increasing for existing home loan borrowers.

"The RBI move might have an immediate impact on home buying for a short-term as the recent consecutive repo rate hikes have already added to buyers’ overall acquisition cost. Rising interest rates, along with elevated property construction cost and product price pressures, could adversely impact the real estate sentiment when buyers are likely to invest in their dream homes foreseeing the festive season," says Ramani Sastri, chairman & MD, Sterling Developers. 

"The impact of rate hike will be predominantly on the affordable housing side, which is primarily driven by sentiments and especially first-time home buyers, who are heavily reliant on home loans," says Lincoln Bennet Rodrigues, Chairman & Founder, The Bennet and Bernard Company.

***

RBI Hikes Repo Rate To 4.90%

As it tries to tackle an eight-year-high inflation, the RBI on June 8, 2022, increased the repo rate by 50 basis points. The hike on Wednesday brings RBI's short-term lending rate to 4.90%. The six-member monetary policy committee unanimously voted in favour of the repo rate hike.  

In an off cycle announcement on May 4, 2022, the apex bank had effectuated a 40 basis point increase in the repo rate, bringing it to 4.40%.

Further repo rate hikes are also not ruled out since inflations remains outside the comfort zone of the RBI — FY23 CPI inflation seen at 6.7% as upside risks persist. 
The next meeting of the MPC is scheduled between August 2 and 4, 2022.   

Announcing the third monetary policy for the current fiscal virtually, the RBI governor said the Indian economy was resilient, and the central bank would continue to support growth. 

Home loans to go costlier; EMIs to increase 

The move will prompt banks in India to start a rate hike cycle, bringing an end to a record low home loan interest regime. So far, home loan interest rates continue to hover at sub-7%. 

As it is, several banks, including HDFC Bank, ICICI Bank and Punjab National Bank, have increased their marginal cost of funds-based lending rates following the May 4 hike in the repo rate.  

“From a real estate perspective, this hike in the policy rate comes as a hurdle as home loan rates will increase, putting a dent on the homebuyer's sentiments. Any increase in the interest rate will further impact the costs of doing business and hence, the move will hurt business sentiment too as the economy is still recovering from the pandemic,” said Ramani Sastri, Chairman and MD, Sterling Developers.  

 ***

RBI hikes repo rate to 4.40%

May 4, 2022: With a view to tame stubborn inflation levels, the RBI, on May 4, 2022, hiked the repo rate by 40 basis points, to bring it to 4.40%. In a surprise virtual briefing, RBI governor Shaktikanta Das also announced an increase of 50 basis points in cash reserve ratio, to bring it to 4.50%.  

The move is likely to usher in the end of a record low interest rate regime, consequently pushing home loan interest rates.   

“The Central Bank, in response to elevated inflation levels due to geopolitical tensions and its impact on the Indian economy, has decided to raise the repo rate by 40 bps, and this has been announced before the scheduled MPC meeting. This dynamic response has been to ensure that inflation is brought under control, and does not impact the broad-based recovery of the Indian economy that has been witnessed recently. This step has also come in response to the near likely significant hike in Fed rates as inflation has been affecting the US economy," said Samantak Das, chief economist, and head-research and REIS, India, JLL.

"From a real estate point of view, this hike in policy rate is not welcome, and will have a negative impact as home loan rates will increase immediately. This repo rate hike coupled with cost-push inflation in construction is likely to slow down the growth trajectory of the residential sector, which does not augur well for the Indian real estate sector,” he added.

 ***

RBI Leaves Repo Rate Unchanged At 4%; Home Loans To Stay At Record Low Level

April 8, 2022: The RBI, on April 8, 2022, decided to maintain a status quo on key policy rates while retaining its accommodative stance, as India's apex bank tries to fuel economic growth after a prolonged slowdown caused by the Covid pandemic. As a result of this, the repo rate and the reverse repo rate remain unchanged at 4% and 3.35%, respectively. 

***

RBI leaves repo rate unchanged 

February 10, 2022: The RBI (Reserve Bank of India), on February 10, 2022, decided to leave the repo rate unchanged at 4%. This is the 10th consecutive time that the banking regulator has maintained a status quo on the repo rate, at which it lends money to scheduled banks in India.  The governor Shaktikanta Das-led apex bank left the reverse repo rate unchanged at 3.35%, too, while maintaining its accommodative stance. 

While repo rate is the interest the RBI charges from banks to lend funds, the reverse repo rate at which it borrowers funds from financial institutions in India. 

These decisions, broadly meant to support India's coronavirus-affected economy come out of a slump, were taken at the bi-monthly monetary policy review meeting that was conducted between February 8 and 10, 2022.  

“Overall, taking into consideration the outlook for inflation and growth, in particular the comfort provided by improving inflation outlook, the uncertainties related to Omicron and global spillovers, the MPC was of the view that continued policy support is warranted for a durable and broad-based recovery,” RBI governor Shaktikanta Das said in his address.

The move by the RBI augurs well for India’s real estate sector that has been reeling under the impact of the pandemic. Since the cost of borrowing funds is going to be low for banks, they would continue to pass on the benefits of this low interest rate regime to home loan borrower. Currently, most banks in India are offering housing loans at sub-7% interest rate.

"We welcome the RBI's decision to continue with their accommodative stance keeping in mind the economic concerns in near future. The measures announced for liquidity amplification in the economy are indeed a progressive step and were much needed. Real estate has been severely hit during the pandemic and the recent Budget announcements and the RBI's decision today will boost the sector to cope with markets’ uncertainties," said Jitesh Lalwani, president, Home Sync Real Estate Advisory Services.

"The RBI's decision to maintain its accommodative stance was on the expected lines, considering the outlook for inflation and growth. The government has always taken affirmative measures to revive the economy and alleviate the Covid-19 impact with sustained fiscal and monetary support. The prevailing low home loan rates are already enticing for homebuyers which have immensely benefited the real estate sector. This decision will create further demand and sustain the growth momentum in upcoming months," said Bhushan Nemlekar, director, Sumit Woods Limited.

 ***

RBI Leaves Repo Rate Unchanged At 4% Amid Omicron Concerns

December 8, 2021:  The six-member monetary policy committee of the Reserve Bank of India (RBI), on December 8, 2021, decided to leave the repo rate unchanged at 4 per cent.  The move by the apex bank was on the expected lines, amid rising fears of spread of the Omicron variant of the Coronavirus.

"We hold strong buffer to manage global spillovers and inflation is broadly aligned with target. We are better prepared to deal with the invisible enemy - COIVD-19. The domestic economic outlook is somewhat clouded by the Omicron variant," said RBI Governor Shaktikanta Das, while announcing the decision of the MPC.

"The decision of the RBI MPC, to keep key policy rates unchanged, is along expected lines. The ongoing growth-inflation trade-off also requires the banking regulator to tread a careful path. Even though economic indicators are reflecting a positive trend, interest rates needed to be kept at the current level, in order to continue to drive growth and boost demand in the real estate sector, which is a key contributor to economic growth in India. If home sales have shown consistent improvement over the past couple of quarters, much of this can be attributed to the record low interest rate regime. Upsetting the current momentum would have been highly detrimental to overall economic recovery," said Dhruv Agarwala, group CEO, Housing.com, Makaan.com and Proptiger.com.

“Given the current eminent Omicron threat, a status quo on repo rates comes as no surprise. These low rates will help maintain the pace of the economic revival. This is also good news for the real estate sector, as low home loan rates, coupled with attractive offers from builders, will keep home buying bullish. Going forward, the focus will be on how long these rates can be sustained and keeping inflation in check,” added Atul Monga, CEO and co-founder, BASIC Home Loan.

***

At 4%, RBI Leaves Repo Rate Unchanged For 8th Straight Time

October 8, 2021: The six-member rate setting panel of the Reserve Bank of India (RBI) on October 8, 2021, decided to leave the repo rate unchanged at four per cent for the eight straight time. The RBI’s monetary policy committee (MPC), headed by governor Shaktikant Das, also decided to leave the reverse repo rate at 3.35 per cent while also maintaining an accommodative stance after a three day meet that started on October 6, 2021.

The move by the RBI is on the widely expected lines. In polls conducted ahead of the policy meeting, all economists in Reuters and Bloomberg polls said the central bank will continue to hold rates steady to support economic growth.

For the uninitiated, the repo rate is the short-term benchmark interest the RBI charged from scheduled banks in India to lend money. The reverse repo rate on the other hand is the short-term benchmark rate at which the central bank borrows funds from banks.

The RBI has cut the repo rate by a total of 115 basis points (bps) since March 2020, following a 135 bps rate reduction since the beginning of 2019.

The move by the RBI comes at a time when nearly all leading banks in the country have reduced home interest rates in order to boost demand for residential property during the ongoing festive season. Real estate developers, who have planned extensive discount deals to attract homebuyers, have welcomed the RBI decision.

“The RBI decision to leave the rate unchanged will boost demand during the ongoing festive season. The current scenario offers excellent investment opportunities in the residential segment as affordability is at an all-time high. As banks and financial institutions further slash interest rates, it will provide a much-needed fillip to the real estate sales in the festive season," said Himanshu Jain, VP - sales, marketing and CRM, Satellite Developers.

At present home loans are available to homebuyers at an annual interest of as low as 6.50 per cent. Among the leading banks that have recently reduced interest rates to boost the festive spirit are Kotak Mahindra Bank, Bank of Baroda, State Bank of India, Punjab National Bank, YES Bank, ICICI Bank, HDFC Bank, LIC Housing Finance, etc.

''The RBI maintaining a status quo on key policy rates was expected. The all-time low interest rates have already given a boost to the real estate sector and enhanced homebuyer confidence. It has also helped the sector to regain its strength as well as stay afloat during these unprecedented times. The government's favourable policy measures along with festive deals will help sustain the demand during the festive season,'' said Shraddha Kedia-Agarwal, director, Transcon Developers.

***

RBI Leaves Repo Rate Unchanged At 4%; Homebuyers to Benefit

August 6, 2021: The Reserve Bank of India (RBI), on August 6, 2021, decided to leave key policy rates unchanged as it attempts to support the Coronavirus-hit economy and help it to come out of the woods. With the RBI’s six-member monetary policy committee deciding to leave the key lending rates unchanged, the repo rate continues to remain at 4%, while the reverse repo rate is at 3.35%. The RBI has also maintained its accommodative policy stance.

Recall here that this is the seventh time that the RBI has decided maintain a status quo on key policy rates. The repo rate, at which the banking regulator lends money to scheduled banks in India, is currently at the same level it was in April 2001.

While stating that the RBI cannot drop its guard and must remain vigilant against the third wave of the Coronavirus pandemic, RBI governor Shaktikanta Das said the MPC voted with 5:1 majority to continue with the accommodative stance for as long as necessary, to support economic growth.

Even though the RBI leaving the repo rate unchanged means home buyers would continue to reap the benefits of a record low interest rate regime, real estate developers are of the opinion that a slight downward tweak in rates would have been highly commendable.

“Keeping in mind the current scenario, a slight reduction in the key rates would have been widely celebrated as low interest rates have been a crucial factor in the revival of demand in the real estate sector. We have already seen early signs of improvement in economic activity, following the easing of some restrictions, post the peaking of the second wave,” said Lincoln Bennet Rodrigues, founder and chairman, Bennet & Bernard Group.

Recall here that home loan interest rates currently stand at as low as 6.65 per cent, the lowest they have been in the past 15 years.

***

RBI Keeps Repo Rate Unchanged at 4%

June 4, 2021: The Reserve Bank of India (RBI), on June 4, 2021, decided to leave the repo rate unchanged for the sixth consecutive time, while maintaining an accommodative stance, a decision that is on the lines expected by rating agencies and policy analysts.

This means the repo rate, at which the RBI lends money to banks, stands unchanged at 4 per cent while the reverse repo rate, at which it borrows money from banks stands at 3.35 per cent.

The decision by the six-member monetary policy committee, comes at a time when GDP growth in India contracted by 7.3% in FY21, even as the second wave of the Coronavirus pandemic continues to make deeper dents into an economy which is still reeling under the impact of the first wave in early 2020.

While stating that the central bank will continue its proactive and pre-emptive approach of transmission to return the economy to growth, RBI governor Shaktikanta Das said the MPC voted unanimously to keep repo rate unchanged and maintain an accommodative stance.

The RBI has also lowered India’s GDP growth forecast for FY22 to 9.5%.
Even though the monetary policy committee’s decision to maintain a status quo was widely expected, developers, who were expecting a reduction in rates, have voiced their disappointment over the RBI move.

“A rate cut would have been beneficial for the consumers and would have given a boost to the current demand uptick that we have seen recently. Residential demand is reviving in the pandemic context and this needs to be fostered. However, the prevailing home loan rates, which are at a record low, are already enticing for homebuyers,” said Lincoln Bennet Rodrigues, founder and chairman, Bennet & Bernard Group.

“It also goes without saying that the real estate industry's perennial hope is fixed on lower interest rates. Any further reduction of the repo rate would have aided in ensuring adequate flow of capital in the market,” said Ramani Sastri, CMD, Sterling Developers.

***

RBI Leaves Repo Rate Unchanged On Virus Concerns

April 7, 2021: The Reserve Bank of India (RBI) on April 7, 2021, left key rates, including the repo rate, unchanged amid lingering fears that India might have to announce another nation-wide lockdown because of a dramatic spike in coronavirus cases.

With this, the repo rate remains unchanged at 4% while the reverse repo rate sticks at 3.35%. This is the fifth time in a row that the apex bank has decided to leave the rates unchanged as it attempts to spearhead an economic recovery for Asia’s third-largest economy in the aftermath of the coronavirus spread.

Last time, the six-member monetary policy committee (MPC) of the RBI tweaked rates in May 2020.  The banking regulator also continues to maintain an accommodative stance in order to support growth.  

The move to leave the repo rate, at which it lends money to banks in the country, is likely to prompt banks in India to continue offering record low home loan interest to buyers in order to continue the growth momentum going in the country’s second-largest employment generating sector, real estate.  

However, the developer community is of the view that a slight reduction would have been more appropriate, considering demand in the housing sector has been improving on government support measures.

"Keeping in mind the resurgence of Covid infections across the country, a slight reduction in the key rates would have been widely celebrated. With the temporary reduction in transaction costs being withdrawn, in states like Maharashtra, the expectation amongst stakeholders of the industry is that the banks should now further sweeten the lending rates, at least till such time that the economy gets back to the pre-COVID levels," said Kaushal Agarwal, chairman, The Guardians Real Estate Advisory.

The decision would however prompt banks to continue offering record low home loan interests.

“The RBI move to hold key rates unchanged, including holding the repo rate at 4%, is along expected lines, amid a sharp increase in COVID-19 cases in India that has forced many states to announce partial curfews and lockdowns. Even though public lender SBI recently announced a hike in its home loan rates, triggering expectations that other banks might follow suit, we hope that lenders in India would take a cue from the RBI move to leave rates unchanged and continue to offer homebuyers the benefit of a historically low interest rate regime. This is the first review of the monetary policy in the new fiscal year and it is likely that RBI will carefully monitor how the COVID-19 situation evolves and change its stance later in the financial year as the need arises,”  Dhruv Agarwala, Group CEO,  Housing.com, Makaan.com and Proptiger.com.

***

RBI Leaves Repo Rate Unchanged

February 5, 2021: On widely expected lines, the Reserve Bank of India (RBI), decided to leave the repo rate unchanged at four per cent. The RBI has also maintained its accommodative stance and a status quo the reverse repo rate, at 3.35 per cent.

As India moves to attain normalcy after the Coronavirus pandemic-induced economic mayhem, the apex bank is expected to maintain the rates at this level at least through 2023, a Reuters poll had earlier indicated.

Recall here that this is the first meet of the RBI’s six-member monetary policy committee, after the centre announced its Budget for FY22, on February 1, 2021. The RBI has maintained rates since May 22, 2020. However, since March 2020, it has lowered the repo rate by 115 basis points.

While stating that the economy is poised to improve, with signs of recovery indicated by an expansion in the list of normalising sectors, RBI governor Shaktikanta Das said that signs of revival were also visible in India’s housing sector, with supply and demand, both showing improvement amid an improvement in consumer sentiment. Data available with PropTiger.com show new supply and sales improved in the October-December period (fourth quarter of Q4) of 2020, in India’s eight prime residential markets.

“The Union Budget 2021-22 has introduced several measures to provide an impetus to growth. The projected increase in capital expenditure augurs well for capacity creation thereby improving the prospects for growth and building credibility around the quality of expenditure. The recovery, however, is still to gather firm traction and hence continued policy support is crucial,” Das said.

Commenting on the policy move, Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and Proptiger.com, said: “The decision of RBI to keep the repo rate unchanged along with accommodative stance is understandable at this juncture, although a further cut in the key rates would have given a boost to current demand uptick that we have seen recently. The measures announced by the RBI governor today for liquidity enhancement in the economy is indeed a good step, and was much required.”

While the RBI move is on the expected lines, real estate developers have aired disappointment over the decision.

“After a budget that had limited announcements for real estate, the sector was hoping against hope for a further reduction in the repo rates. The reduction would have spurred growth in demand for real estate assets that have been severely hit as a result of the pandemic and subsequent lockdowns,” said Kaushal Agarwal, chairman, The Guardians Real Estate Advisory.

The next meeting of the MPC is scheduled during April 5 to 7, 2021.

***

RBI Maintains Status Quo On Repo Rate

December 4, 2020: In a widely anticipated move, the Reserve Bank of India (RBI), on December 4, 2020, decided to leave the repo rate unchanged at 4% amid high inflation and slowing economic contraction. The six-member monetary policy committee (MPC), headed by governor Shaktikanta Das, also decided to continue with an ‘accommodative’ stance, to boost growth through consumptions, as signs of recovery become visible in the aftermath of the Coronavirus pandemic.

“The MPC decided to continue with an accommodative stance of the monetary policy, as long as necessary, at least till the current financial year and into next year, to revive growth on a durable basis and mitigate the impact of COVID-19, while ensuring that inflation remains within target," Das said, at the virtual announcement of the policy move.

In a Reuters poll conducted in November 2020, all 53 analyst-participants had said they did not expect any change in rates, with the next rate cut now seen in the April-June quarter.

Impact on housing demand

Since home loan interest rates are already at a record low with most banks in India offering home loans at below 7% currently, the chances of further correction are slim. However, the demand for homes will continue to be robust, because of various factors.

“The RBI’s decision of keeping the repo rate unchanged was on expected lines, owing to the rise in inflation in recent months. In the wake of COVID-19, Q2 of FY21 witnessed a strong improvement in consumption and therefore, the RBI maintaining the status quo for the third time in a row is a positive step in keeping inflation under control,” said Anshuman Magazine, chairman and CEO, CBRE India, South-East Asia, Middle East and Africa.

“The strengthening of recovery in rural demand and the momentum gain across the urban sector, will also support the real estate sector. Additionally, the policy support being provided by the government will continue to boost residential uptake and support construction activity in the upcoming months,” he added.

While lauding the RBI’s move, Ambience Group's Ankush Kaul, however, cautioned that disruptions might upset the recovery. "There is a need to put a check on the spread of the virus and disruptions like the farmers’ protest, etc. These may collectively dampen the festive spirit and the upswing in home buying that we witnessed a few months back," said Kaul, who is the president of sales and marketing at Ambience Group.

"The real estate industry stands to benefit due to several measures taken by the government so far. However, there is a lot that needs to be done for the sector to improve the pace of growth. We are looking forward to a bigger rate cut and sector-specific lending provisions to improve both the liquidity scenario and consumer spending ability," said Surendra Hiranandani, CMD, House of Hiranandani.

***

RBI Leaves Repo Rate Unchanged Over Inflation Concerns

October 9, 2020: Banking regulator RBI (Reserve Bank of India) left its key lending rates unchanged as supply-side disruptions stoked high inflation, while economic uncertainty loomed large over the country amid spiking Coronavirus infections.

In its penultimate policy review for 2020 on October 7-8, the six members MPC (monetary policy committee) decided to tightly hold on to the repo rate at 4%, the reverse repo rate at 3.35% and the  marginal standing facility (MSF) rate and the bank rate' at 4.2%.

The reverse repo rate is the rate at which the RBI borrows money from banks. Cash reserve ratio is the percentage of total deposits that banks must keep in their reserves, on which they earn no interest. Depending on the situation, this money is infused into the system to improve liquidity.

After its inception in India in 2000, the repo rate was previously lowered to its lowest level of 4.74% in April 2009, in the wake of the global slowdown.

Future reduction in rates is, however, a possibility as the apex bank continues to maintain an ‘accommodative’ stance to help the Coronavirus-hit economy spring back to its feet. "It also decided to continue with the accommodative stance of monetary policy as long as necessary -- at least during the current financial year and into the next year -- to revive growth on a durable basis and mitigate the impact of Covid-19, while ensuring that inflation remains within the target going forward," RBI Governor Shaktikanta Das said.

As the RBI move was broadly expected, with retail inflation remaining at a level above the RBI comfortable zone, real estate developers in India have shown no surprise over the move. They are, however, of the opinion that financial institutions must continue with rate reduction to encourage homebuyers to invest in property.

“Even though the apex bank has kept the rates unchanged, we still believe that there is room for financial institutions to cut down on their lending rates for their customers. During the lockdown, the RBI reduced the repo rate which is yet to be fully passed on to the customers,” said Amit Modi, director, ABA Corp, and president-elect, CREDAI, western UP.

According to Abhishek Bansal, executive director, Pacific Group, it was an expected move as the repo rate was already low. “The real estate market has started picking up as people are enjoying the low-interest rates and subdued pricing,” he said.

Recall here that banks have brought down home loan interest to sub-7% annual interest level after the RBI, though consecutive cuts brought the repo rate, at which it lends money to scheduled commercial banks, to 4%. Most public lenders including Union Bank, Canara Bank, Punjab National Bank, etc., are currently offering home loans at over 6% interest.

To cash in on the festive spirit, lenders like SBI are also offering waivers on associated charges such as the processing fee on home loan approval.

“The sector is already reaping rewards of the multiple steps taken by the government and low home loan interest rates extended by banks. The RBI should have made some announcement to improve liquidity in the real estate sector, as many developers are facing the heat after COVID-19 led to a complete shutdown of operations,” said Deepak Kapoor, director, Gulshan Homz.

According to Achal Raina, COO, Raheja Developers, the extension of lending limit for retail exposure from Rs 5 crores to Rs 7.5 crores and reduction of risk weightage on home loans and linking it with LTV ratio. augurs well for the real estate sector.