Repo rate hike: Here’s what experts are saying

With the repo rate reaching 6.25 per cent, industry experts have mixed reactions to the big breaking.

Repo rate hike

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) in a 5:1 decision, increased the repo rate by 35 basis points (bps) to 6.25 per cent to contain inflation, on December 7, 2022.

The RBI policy rate is now at its highest level since August 2018. This is the fifth rate hike by the central bank in this financial year, and with this, the repo rate has increased by 225 points this fiscal year.

Here are the reactions from the industry stakeholders on the repo rate hike by RBI.

Dr Arun Singh, Global Chief Economist, Dun & Bradstreet India elaborates that the slowdown in the pace of policy rate hike will provide temporary support to the momentum of growth in economy.

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“In spite of rate hike, India’s real interest rates remain below the RBI’s estimated natural rate of interest i.e. between 0.8 and 1 per cent this suggest that there is scope for a further rate hike. Given policy crisis at global level, that should not signal an end of the tightening cycle as it could worsen rupee. Future action taken by central banks across developed and major developing countries will have strong influence or provide input to RBI’s in policy decision. Supporting currency and ensuring growth impulses are going to be difficult tasks to maintain amidst the uncertainties surrounding the pace of global inflation and impending recessions.” he said.

Prabhat Chaturvedi, CEO of Netafim Agricultural Financing Agency, says, The central bank must maintain the neutral or positive zone of the repo rate while focusing inflation control within a tolerated threshold. As India wants to make MSMEs self-reliant, higher interest rates will increase the cost of borrowing for MSMEs.

“MSMEs are already battling inflation headwinds, lower demand, and loan interests, it could lead to a slowdown in investment and expansion plans and impact profitability for the sector,” he added.

Experts from the finance industry are worried due to the repo rate hikes. Research Analyst from Angel One Ltd., Heena Naik said, “Global growth is set to lose momentum as monetary policy actions tighten financial conditions and as consumer confidence weakens with the rising cost of livelihood.”

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“Consumer price inflation moderated to 6.8 per cent year on year, in October as expected, but it still remains above the upper tolerance band of the target,” Naik adds.

Real estate sector is also reacting to RBI’s decision to increase repo rate fifth time. Anand Naiknavare, Business Head of Process at Naiknavare Developers comments that RBI rate hike will definitely make interest rate expensive. “It means to take loans for retail customers, construction cost and product price pressures could adversely impact the real estate buyer’s sentiment. We certainly believe it will directly impact sustaining consumer demand.”

Weighing in Kaushal Agarwal, Chairman at The Guardians Real Estate Advisory says, “Thus far, the rising cost of house ownership led by higher EMI, higher stamp duty and other factors has not affected real estate sales, Which is a firm indicator of genuine demand for housing. But any further hike in the repo rate might temporarily limit the growth momentum of the real estate sector,”

Experts have come up with positive reactions as well.

Ridhima Kansal, Director at Rosemoore says, the rise in the repo rates has been on the expected lines, as there is a pressing need to clamp down on the rise in inflation. “The rate of inflation reached 6.77 per cent in October, sending signals to the higher authorities to take further prudent steps and rein in the rise. The rise in the repo rate will affect the purchasing appetite to some extent. However, the overall economy looks bullish and this is a positive sign. A healthy and upbeat economic growth forecast will continue to drive the retail market in India.”

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Nidhi Aggarwal, Founder, SpaceMantra also feels its a positive move. “The realty sector in India will remain unperturbed by the current surge in repo rates. India continues to be one of the fastest-growing emerging economies in the world with an estimated rate of growth of 7 per cent in the current fiscal,”

“This further indicates that Indian markets are largely insulated from the muted global economic outlook,” she adds.