The repo rate hike by a quarter percentage point on Wednesday will put pressure on new demand creation, especially for the affordable segment, increase funding cost and suppress buyer sentiments, top executives from the corporate sector said.
The central bank has so far hiked the repo rate six times in 10 months this year. With a jump of 250 basis points, from 4% in May to the current 6.50%, the repo rate is at the highest level in more than three years. As banks are expected to pass on the hike to customers, the budget segment across categories is expected to feel the pinch.
Niranjan Hiranandani, national vice-chairman, National Real Estate Development Council (NAREDCO), said, “The impact of a home loan interest rate hike will be a deterrent in the affordable housing segment, as it will impact the price-sensitive homebuyers and create fatigue in the supply of the developers. The luxury and mid-housing segment players will remain cautious with a slightly longer sales cycle.”
Besides the real estate sector, the hike will have an impact on automotive demand, especially for the entry level two-wheeler and entry-level car segments. Since several auto buyers have EMIs on home loans which are also set to go up, the hike will impact overall buyer sentiment.
Manish Raj Singhania, president, Federation of Automobile Dealers Associations, said, “This decision of the RBI will have a detrimental effect on the price-sensitive entry-level passenger car segment and entry-level two-wheeler segment, which are already reeling under pressure due to regular price hikes. Above this, the rate hike will lead to an increase in EMI payments, which will increase the operating cost.”
But the hike was on expected lines, say analysts, as taming
inflation became the need of the hour. The market had factored that in and that is why the impact would be moderate, given the broader growth in the economy and income levels. The housing sector, which has shown robust growth till now, will remain largely unaffected by the hike, some experts believe.
Shishir Baijal, chairman & MD, Knight Frank India, said, “The impact of the interest rate hike on the housing sector has been limited. Demand for home loans has remained strong during the last year, as seen in the 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 is expecting inflation to average 5.6% in the current quarter, with the GDP growth in the same quarter expected to be
at 5.8%, putting the yearly growth at 6.4%. Sanjay Palve, senior MD, Essar Capital, said, “The RBI anticipates a moderation in inflation in the coming months and we expect it to pause the rate hike from the next policy review, and have a gradual shift in stance to neutral.”