The monetary policy committee of the Reserve Bank of India has raised the repo rate by 50 basis points to 5.40 per cent to contain the persistently high inflation. The three-day monetary policy committee meeting commenced on Wednesday.
Today’s hike takes the repo rate above pre-pandemic levels of 5.15 per cent. In line with the global trend of monetary policy tightening to cool off inflation, the RBI has so far hiked the key repo rates- the rate at which the central bank of a country lends money to commercial banks, by 140 basis points.
Raising interest typically suppresses demand in the economy, thereby helping inflation to decline. The committee also decided to remain focused on the “withdrawal of accommodation” stance to ensure that inflation remains within the target going forward while supporting growth.
Since the MPC’s meeting in June 2022, the global economic and financial environment has deteriorated with the combined impact of monetary policy tightening across the world and the persisting war in Europe heightening risks of recession, the RBI assessed.
“The US dollar index soared to a two-decade high in July. Both advanced economies (AEs) and emerging market economies (EMEs) witnessed the weakening of their currencies against the US dollar. EMEs are experiencing capital outflows and reserve losses which are exacerbating risks to their growth and financial stability,” the central bank said.
Notably, the MPC reiterated that retail inflation is projected to remain above the upper tolerance level of 6 per cent through the first three quarters of 2022-23. Inflation projections are retained at 6.7 per cent in 2022-23, Das said.
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Reacting to the big breaking, Shiv Parekh, Founder, hBits from real estates, said, “Residential real estate will face some challenges with the home loan rates going up again. The banks are expected to pass on the burden to the customers. With the cost of acquiring capital going up for every sector, we may see a reduced economic activity across industries, especially the capital-intensive industry.”
Weighing in for the same, the founder of Investors Clinic, Honeyy Katiyal expressed, “In the residential sector, an upward revision will obviously impact the sentiments of homebuyers. The increase in repo rate will lead to a proportionate erosion of affordability, which can affect the sales momentum.”
“The increased repo rates will derail the housing momentum, and will certainly soften the impact on first-time homebuyers who are heavily reliant on home loans. There are millions of homebuyers who will be alienated from the property markets after the hike,” he added.
Also Read: Repo rate hike: What do real estate experts have to say
Further, from the investment sector, “While interest rates have gone up, the high GST collections indicate good growth rates. Hence in the medium term, capital expenditure should be considered. Interest rates will also even out over a period of time, stated K V Srinivasan, Executive Director & CEO, Profectus Capital.