Industry Expert Quotes on RBI hikes by 40 basis points
"We had expected the RBI to hike rates from second half of the fiscal and hence the timing and quantum of RBI repo rate hike by 40bps and hike CRR by 50bps mid-cycle was a bit of surprise." says some of the industry leaders
Umesh Revankar, Vice Chairman & MD, Shriram Transport Finance
“We had expected the RBI to hike rates from second half of the fiscal and hence the timing and quantum of RBI repo rate hike by 40bps and hike CRR by 50bps mid-cycle was a bit of surprise. The RBI has hiked rates, owing to the rise in fuel costs and food inflation on account of geo-political concerns which has turned out to be a long term issue. The supply chain related inflation is another challenge altogether. We believe that the lending rates may go up gradually, and since there is enough liquidity in the system, our borrowing cost may go up only gradually. Most of the borrowing for us is fixed in nature and hence the rate hike will not have an immediate impact on borrowing cost. I still believe that the economy is recovering & growing, and I don’t think a 40bps rate hike will dampen demand. Most of the high frequency indicators do indicate the Indian economy is gradually recovering and given the ongoing geo-political situation, it was prudent to manage the evolving growth-inflation dynamics.”
Indranil Pan - Chief Economist, YES BANK
“The logical underpinning of RBI hike today and away from the regular policy date is the rising concern on inflation – especially with regards to food. Food inflation, more than the non-food inflation, can change inflation expectations in India drastically. The governor pointed out that even as domestic supplies are healthy, global high wheat prices are affecting domestic prices while edible oil prices have increased due to the ban in exports from Indonesia. Manufacturers may also pass on higher input costs to end users sooner than later. Thus, the crucial backing for the 40bps hike came from an understanding that inflation is here to stay. The timing of the hike is important too as it seems to just precede a likely 50-75bps increase in the policy rate by the US Fed. This is possibly to ensure that the INR is safe from any speculative attacks, notwithstanding the LIC IPO, and especially as the FX reserves are down by around US30 bn from its peak levels. In this financial year alone, India’s FX reserves are down by about USD 6.9 billion.”
Prasenjit Basu – Chief Economist, ICICI Securities
“The persistence of high crude oil prices, and uncertainty over the length of the Russia-Ukraine war, have resulted in sustained inflationary pressure globally. With the Chinese and Japanese currencies depreciating 4% and 6% respectively last month, emerging market currencies are under pressure. Although the rupee has depreciated only 1.1% in the past month, any further downward pressure on the rupee would spark greater worries about imported inflation, so a timely rate hike was needed ahead of the inevitable US rate hike expected this week.
If the Russia-Ukraine war persists beyond May and June, more rate hikes will be needed. If there is an early end to the war (within the next 5-6 weeks), global inflationary pressures will ease, reducing pressure for further rate hikes.
The whole structure of interest rates will harden, implying that loans will be costlier and fixed deposits more attractive. The equity markets will take a negative hit, especially since this was a surprise inter-meeting hike. We were expecting a hike at the next MPC meeting, after the hawkish hints at the last MPC meeting a month ago, but today’s move was larger and earlier than expected.”
CA Amit Gupta, MD, SAG Infotech:
“Heard of the recent hike in repo rate by the RBI in the development of RBI latest policy. The Monetary Policy Committee (MPC) has approved raising the policy repo rate by 40 basis points to 4.40 percent. Well, as believed that is a part of an unscheduled review of policy, the benchmark interest rate was increased in order to contain inflation. As our governor noted, both conventional and unconventional tools have been employed to support growth in light of supply shortages and volatility in commodity and financial markets.”
Subhash Goel, MD- Goel Ganga Developments:
“It is not very surprising that the RBI has increased the repo rates by 40 basis points in the emergency meeting. Indian retail inflation has reached 6.95% and it is likely that the government will rein in liquidity. The silver lining is that the Indian economy is on a strong footing and most the agencies have predicted a promising growth rate in the range of 8-9% in the current fiscal. The job market is also bullish and most of the tech, IT, BFSI, start-ups, etc are on a hiring spree. This will keep the momentum growing in real estate. As rates are increasing many fence-sitters now will quickly make the move, which might be a blessing in disguise.”
Ravi Singh, Vice President and Head of Research at ShareIndia
“The Russia and Ukraine war has led to steep rise in commodities prices which further results in soared retail inflation worldwide. Several central banks has already started policy tightening to curb the inflation. Today the rate hike move of 40 bps by RBI has been aimed at containing inflation spikes & re-anchoring inflation expectations. However, RBI has ensured that there will be adequate liquidity in the system to meet the productive requirements of the economy.”
Kaushal Agarwal - Chairman, The Guardians Real Estate Advisory
"The RBI's decision announced in the off-cycle meet today was aimed at re-anchoring inflation expectation and will eventually result in the strengthening of growth prospects. The decision also ends the all-time low home loan interest regime, which boosted the housing demand and helped the economy to get back to the pre-COVID levels. Thus far, the RBI's approach towards tackling the situation created by the pandemic and steps taken to help revive the economy will go down in history as being extremely pragmatic. These steps have enabled a robust recovery in the real estate sector. The latest move by the RBI along with the rise in input cost on construction might temporarily limit the growth momentum of the sector."
Pritam Chivukula - Co-Founder & Director, Tridhaatu Realty and Treasurer, CREDAI MCHI
''After two years of unchanged repo rate at 4%, RBI 's decision to hike the interest rate by 40 bps to 4.40% has come as a sudden surprise to the real estate industry in an off-cycle monetary policy meeting held today. In keeping with the stance of withdrawal of accommodation, the sharp acceleration of rates will affect the homebuyers with concerns of EMI on home loans. The State Government which is the largest beneficiary of housing demand should come forward to support the home buyers by reducing stamp duty rate to 3%.''
Shraddha Kedia-Agarwal, Director, Transcon Developers
"RBI's decision to hike the policy rates was anticipated on the back of very high inflation. We have already started seeing a vertical movement in the home prices and the decision will further put a dent on the homebuyer's sentiments impacting the overall demand."
Dr. Sachin Chopda, Managing Director, Pushpam Group
''In an off-cycle monetary policy meeting, the RBI increased the repo rate to 4.4% for the first time in almost two years. This has come as a shock to the entire real estate industry impacting investor's decisions directly as the home loan rates may increase anytime soon. This will create a huge impact on the long-term goals by the investors.''
Bhushan Nemlekar, Director, Sumit Woods Limited
''It is not very surprising that the RBI has increased the repo rates by 40 basis points keeping the inflation of our country as a major concern in mind. With the increasing prices of property, this decision is a huge setback for the real estate industry disrupting the ongoing growth momentum in the sector.''
Jitesh Lalwani - President, Homesync Real Estate Advisory
''RBI’s surprise move to increase repo-rate by 40 basis points in the emergency meeting will create a hitch for the realty industry soon. The banks will anytime start increasing the interest rates on home loans that shall impact the homebuying decision going forward. We urge the Government to act upon the situation to support the realty sector and in favour of homebuyers.''
Anjana Potti, Partner, J Sagar Associates (JSA)
“The geopolitical situation caused by Russia's invasion of Ukraine is weighing on all markets. Market watchers across the world have their eye on the US Federal Reserve which likely to announce a decision to increase rates later tonight. Central banks in many countries are raising rates to counter the effects of inflation. These costs of borrowing had fallen to record lows during the pandemic to bolster growth. Following this trend, the RBI has increased its repo rate from 4.00% to 4.40% and this is likely to have a significant impact on the market including on:
◦ Short term deposits – short and mid-term rates always rise quickest in response to any change in the interest rate cycle
◦ Retail borrowing: Interest rates are likely to be higher for new borrowers. Existing borrowers with floating interest rates will also be affected
Higher costs of living with the increase in prices of commodities due to a lack of supply where everything from food to gas and clothing cost more coupled with higher costs of borrowing will likely slow consumer spending, limiting growth, which has been the recent focus of the RBI’s Monetary Policy.”
Madan Sabnavis, Chief Economist, Bank of Baroda
“The RBI has surprised the market with its two pronged approach of withdrawal of accommodation which is increase of repo rate by 40 bps and CRR by 50 bps. This is more in line with what the MPC spoke of withdrawal of accommodation in the April policy. This is indicative of the fact that there would be more such action taken over time depending on the evolving inflationary situation. We had expected 50 bps increase in repo rate in CY2022 but would now believe that there would be a further hike of 50 bps in the year. These twin measures hence affect both the quantum of surplus liquidity in the system as well as the cost of funds.
The hike in repo rate will help to quell the build-up of excess demand pressures and hence slow down the growth in inflation though it cannot affect some of the components that are driven by global factors.
The overarching focus on inflation is significant as it goes back to the normal mandate of the MPC which is to curb inflation as growth seems to be better placed today. But not tackling inflation now, growth can be jeopardized. This will be the main message from the so-called interim policy announced.”
Avinash Godkhindi, MD and CEO, Zaggle
“Given that the RBI Governor had already highlighted his concerns over inflation and downside risks to growth emerging on account of escalation in geopolitical tensions during his last monetary policy announcement, thus the hike in rate was expected, but the timing was a surprise. The RBI has hiked the repo rate by 40bps to 4.4% and hiked CRR by 50bps to 4.5%. We understand that the uncertainty evolving around geopolitical tensions, high inflation rate due to hike in global oil prices and food prices are likely to elevate the input cost pressure and further pose a challenge. However, since we are witnessing signs of recovery in the economy, the RBI rate hike may not dampen overall demand scenario. There is adequate liquidity for productive requirements of the economy and as such borrowing cost in the system may go up at a gradual pace. We believe this is surely the beginning of the RBI rate hike cycle, although in a calibrated manner to respond to the evolving growth-inflation situation. The RBI has also reiterated that they will ensure adequate liquidity in the system to meet the productive requirements of the economy in support of credit offtake and growth.”