The RBIs decision to increase repo rates by 25 bps to 6.25% after 4 years speaks of a carefully deliberated decision in light of the recent inflationary pressure on the economy.
With inflation in April ’18 close to 4.25%, this decision comes as RBI looks to keep inflation under check in light of the US Fed reserve also announcing an expected hike. The decision was highly expected but will be very critical as the government enters into the election year.
The Monetary Policy Committee’s 3-day session seems to have taken into account the challenging global environment as well as the consumer inflation which is also well above the comfort levels for the central bank. The vote for a hike could also have been aided by the increased crude oil prices. Though the govt. has been passing on the hikes to date, a further hike may be very difficult to pass on which may have put additional pressure on the govt.
The hike may seem to dampen sentiments in the market but in terms of real estate may have little or no impact. As almost all home loans these days are on floating rates, the rise and fall in home loan rates does not impact the performance of residential real estate sector much and tends to balance each other out over long term. As buying decisions are generally not taken based on fluctuations in home loan rates, there will be very little effect on the real estate market. Though for some home buyers looking towards making a very low ticket size purchase decision, there may be some tentativeness in the decision making, overall we will see minimal impact on the end-user in the housing sector.