Monetary Policy Reaction – Entering the Red Zone

SquareFeatIndia — Wed, 08 Jun 2022 05:02:07 +0000

By Anuj Puri, Chairman – ANAROCK

As anticipated, with inflation edging higher in the aftermath of the Russia-Ukraine war and the surging oil prices, the RBI has decided to increase the repo rates by 50 bps. It is now increased to 4.90%.
A hike was inevitable, but we are now entering the red zone. Any future hikes will reflect markedly on housing sales.

Considering that inflation continues above its target zone of 6%, a hike was inevitable, and it will doubtlessly have some repercussions on housing uptake. The RBI is tasked with controlling the spiralling inflation in the country but must simultaneously be careful to not hurt demand recovery. This is a tightrope walk under the best of circumstances. Overall, high inflation with low GDP can be cause of worry but as of now the Indian economy remains robust.

The rate hike will push up home loan interest rates, which had already begun creeping upward after the surprise monetary policy announcement last month. Interest rates will remain lower than during the global financial crisis of 2008, when they went as high as 12% and above. Nevertheless, the current hike will reflect in residential sales volumes in the months to come, more so in the affordable and mid-segments.

The silver lining is that the Indian housing market is still largely end-user driven, so there is no investor mindset seeking the lowest possible entry point. Genuine demand comes from an underlying aspiration for homeownership.

Also Read: RBI makes Homebuyers happy, Repo rates unchanged

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Monetary Policy Reaction – Entering the Red Zone