RBI Monetary Policy (MPC) meet 2023: Will home loan interest rates and EMIs increase?

RBI Monetary Policy Meeting (MPC) Today, February 2023: What home loan borrowers and homebuyers should know

RBI Monetary Policy (MPC) meet 2023: Will home loan interest rates and EMIs increase?
What is expected from RBI Monetary Policy Meeting in February 2023. Representational image

RBI Monetary Policy Meeting Today, February 2023: After Budget 2023 failed to provide any relief to homebuyers, all eyes of home loan borrowers were on the outcome of the RBI MPC Meeting announced today.

Increasing the pain of home loan borrowers, the Reserve Bank of India (RBI) has further raised the repo rate by 25 basis points to 6.5%. With this, the repo rate has increased by 250 points since last year. The latest hike in repo rate is likely to impact home loan borrowers, whose EMIs have shot up amid inflation and job uncertainties.

Also Read: RBI MPC Meet Live News and Analysis

Housing sector experts say that with the latest rate hike, home loan interests may breach the 9.5% mark and put pressure on the affordable and mid-range housing segments.

“Given that interest rates may breach the 9.5% mark with today’s hike, we may see some pressure on sales volumes in the affordable and lower mid-range housing segments, which are more cost-conscious. The affordable segment has already been in the doldrums, and adding further to the cost of acquisition obviously does not help,” said Anuj Puri, Chairman – ANAROCK Group.

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Here’s a look at what the experts expected from RBI MPC meet

Most experts were of the view that either the RBI will hike the repo rate by at least 25 basis points or maintain the status quo.

SBI Research believed that the RBI will pause rate hikes in its February Policy. “In the current rate cycle, rate actions, both hikes and cuts, have been largely synchronized. We find evidence that synchronized rate actions have resulted in increased market volatility and financial stability in both the period post global financial crisis and the current regime. A nonsynchronous monetary policy action in 2023 by central banks across the world could thus materially result in lower volatility and financial stability…RBI might take cues…as financial stability takes precedence… We believe at 6.25%, it could be the terminal rate for now,” Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI wrote in ‘Prelude to MPC Meeting’ report.

Umesh Kumar Mehta, CIO at SAMCO Mutual Fund, also expected a pause in the Repo Rate hike. “Given, how well the RBI has controlled inflation in recent months, we anticipate that it will soon align with the government’s preference for growth. Through recent reforms on taxation front, the government seems to have changed the rules to shift India’s economy from one focused on savings to one driven by consumption. This week a status quo is expected or at the best, one last hike and then rate hikes could be paused. We anticipate a halt in interest rate hikes in the subsequent next months, followed by the reversal in rates starting next year,” he said.

Also Read: RBI MPC Preview

How will repo rate hike impact home loan borrowers

If there had been no increase in the repo rate then there would have been some respite for borrowers. However, several other experts believed that a 25 basis point hike in the repo rate was possible in today’s MPC statement.

“Though inflation is gradually softening, while the concerns over financial disruptions are still looming, the Reserve Bank of India (RBI) might once again bring a hike in the repo rate by slightly lower 25 basis points,” said Mahesh Shukla, CEO and Founder, PayMe, ahead of the RBI MPC meet.

Suman Chowdhury, Chief Analytical Officer at Acuité Ratings & Research said that the possibility of a pause in repo rate hike has increased even though there is a high probability of a 25 basis point increase.

“The decision of RBI MPC in the first policy meeting (Feb-23) of CY23 is unlikely to be based on consensus. While we believe there is a higher likelihood of a modest 25 bps (or even lower) hike in the repo rate, the probability of a pause has also increased due to the last two monthly inflation prints and the relatively conservative borrowing projections for FY24,” said Chowdhury.

What may drive RBI to pause repo rate hike

Experts pointed out that the economic conditions have improved since the last Monetary Policy Meeting. As such:

  • Retail inflation based on the Consumer Price Index (CPI) has shown signs of moderation in November and December.
  • The headline CPI inflation dropped to 5.88% in Nov-22 and further to 5.72% in Dec-22 below the upper limit of the MPC tolerance band after staying above that level for ten consecutive months in the last calendar year.
  • Global inflation levels have peaked with increased signs of slowdown and moderation in commodity prices, leading to major central banks curtailing the quantum of rate hikes to 25 bps from the earlier 50/75 bps.

What may drive RBI to hike repo rate again

Experts sad that the rationale for going for another round of hikes is to anchor inflationary expectations, given that core inflation still continues to reign above 6%, and also stem the capital outflows which saw a spurt in Jan-23.

“While these data points may make it difficult for RBI to arrive at a decision, the prospects of a revision in monetary stance to neutral is strong,” said Chowdhury.

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First published on: 07-02-2023 at 13:39 IST