The RBI’s decision to hike lending rates, a first in four years, has garnered mixed reviews from the financial and banking sector. While some experts opined that home sales won’t be disrupted by the central bank’s decision, others said the hike in policy rates might adversely impact the positive momentum witnessed in the realty sector in the last few months.
Dhananjay Sinha, head of Institutional Research, Economist and Strategist at Emkay Global Financial Services Ltd, said with the hike, RBI had reversed the 25 bp cut initiated in August 2017. He further said the rate hike could lead to a tightening stance if inflation risks accentuated along with currency depreciation.
“The announcement of a 25bp rate hike by RBI today broadly encompasses considerations of upside revision in inflation trajectory going ahead, impact of rising commodity prices and rising global yields, led by tightening of US dollar liquidity. With this hike the RBI has finally reversed the 25bp cut it initiated in Aug’17, while retaining neutral stance, in the aftermath of demonetisation and impact of GST implementation, which led to surplus liquidity condition,” he said.
Sinha said the key thing to watch out now would be whether growth recovered strongly to compensate for rising rates. “Before today’s hike, the RBI was already behind the curve as the GSec yield curve. Clearly, the risk to rate sensitive sectors, banking NBFC, reality, cap goods, have materialized as expected. We believe as the expectations on future hikes materialize, these risks can become more relevant. The key thing to watch is whether growth recovers strong enough to compensate for rising rates. We maintain our view that fair value for 10 year GSec is at 8.4%,” Sinha said.
Naredco national president Niranjan Hiranandani said the hike was justified on account of inflationary trends, global hardening of interest rates as also petroleum prices moving upwards. “It will not make a major difference to real estate. However, in the long run, we would prefer rates coming down,” he said. Property consultant JLL India chief executive officer and country head Ramesh Nair said the hike may seem to dampen sentiments in the market, but in terms of real estate, may have little or no impact.
Bankbazaar’s CEO Adhil Shetty said the RBI decision was a well-thought-out precautionary move to stay ahead against a backdrop of global volatility in crude and elevated commodity inflation worldwide. “The move has reined in inflationary expectations which will help cushion the rupee as well,” he said. Shetty further said RBI’s decision to allow 2 per cent more SLR (statutory liquidity ratio) to meet liquidity coverage ratio would help banks in distress.
In an advice to home buyers, Shetty said making a pre-payment would lower the overall interest outgo. “This would be particularly a good move for those at the beginning of their loan tenure. An existing borrower may not immediately witness any change in their EMI amount, but a higher interest rate would eventually increase the long-term interest out-go,” he said.
For those nearing the end of your loan, Shetty advised them to maintain it till the end of its tenure to collect any useful tax deductions. “If there is a significant impact, you can explore transferring the home loan to other banks after a comparison of the rates offered to grab the best deal.
Simultaneously, you can also increase your savings or step up your investments to pre-pay your loan so that the interest outflow is not as high,” he said.
Suvodeep Rakshit, vice-president and senior economist at Kotak institutional equities, predicted another 25 bp rate hike in August. “But the call will hinge on how crude and rupee movements pan out over the next few months, as well as, the extent of MSP hikes,” he said.