1. Home
  2. >

Built to inform

Sign up for the daily newsletters

No, Thank you

Industry cautious about RBI’s repo rate hikes

Business

The industry is cautiously positive about the RBI’s recent move to hike the repo and reverse repo rates. However, there are still apprehensions among the real estate players about this hike to cause increase in home loan rates, which, subsequently, may impact the demand for housing sector.

The apex bank, in its first quarter review of the monetary policy, hiked the repo rate by 25 to 5.75% and reverse repo rates by 50 basis points to 4.50%. However, the cash reserve ratio (CRR) has been left unchanged at 6%.
The industry has endorsed the need to hike rates to control inflation but apprehensive about its impact on the growth. “The increase in repo rate and reverse repo rate is a welcome step and is much in line of the expectation. Given the inflationary pressures, it becomes imperative to take such monetary measures but RBI has been generous in keeping CRR rate constant, which will help maintaining a favourable volume of liquidity in the system,” said Rohtas Goel, CMD, Omaxe Ltd said.
Babulal Varma, Managing Director, Omkar Realtors & Developers Pvt Ltd, feels if these policy changes can curb the inflation rates and the rate of commodities can be kept at a reasonable level, then it can be beneficial to the industry in the long run.
The Finance Ministry called this a ‘calibrated step’ in the right direction. “I am very pleased that the RBI has not only raised policy rates but has narrowed down the spread between the repo and reverse repo rates by 25 basis points. A narrower spread shall make for a more efficient financial system,” Pranab Mukherjee said in a statement.
IMC President, Dilip Dandekar, said that the rate hikes were clearly aimed at reining in demand-side inflationary pressures. “With the beneficent monsoon, which is in full swing now, accompanied by measures to bolster the supply side is expected to bring down the rate of inflation to the acceptable levels," he said.
However, industry body FICCI expressed its concern on 50 bps increase in reverse repo rate. “This is a huge surprise as general expectation was at most 25 basis points increase in both rates as RBI had raised both the rates as recently as July 2. Reserve bank’s reaction though understandable is a bit worrisome as there is always an underlying fear of the rate hike eventually leading to increase in lending rate,” said Rajan Bharti Mittal, President, FICCI.
Though, the banks have not talked about immediate hike, there are fear among the house buyers and existing borrowers that their loans might get dearer soon. “The hike has come at a time when the realty sector has managed to find its feet after going through turbulent times during the recession last year. A further hike will lead to lending to real estate companies at even higher rates. This could lead to margins being put under pressure and being an impediment to the growth of the real estate industry,” Varma of Omkar Realtors & Developers said.
From the consumer’s perspective, he said, a small 25 base point leads to a fair increase to home loan outflow and also may lead to withdrawal of the teaser home loan from the market. “This will create a huge impact to the demand for the small/compact home segment,” he added.
Goel of Omaxe Ltd also agrees that the realty sector is reeling under paucity of funds, and prices have been showing an upward trend. “It will help the realty sector only if the current interest rates for retail loans are maintained. This is the fourth time that apex bank has increased the rep rate and subsequently each time, the interest rates have also been increased. We believe that any further increase in the interest rates may lead to downtrend in the over-all demand,” he added.

Most Popular

Awards

Olympia Group announces to build up 1.1mn sq-ft greenfield it park in Guindy
The project will have a total investment of about Rs 750 crore

Conferences

Vital pre-monsoon building works resume in Maharashtra
The state government has permitted pre-monsoon work by BMC and other agencies

Latest Issue

June 2020
10 Jun 2020