Repo rate hike: EMIs may go up, but depositors of THIS segment will benefit, say experts

New Delhi: The Reserve Bank of India (RBI) earlier this month took an unscheduled decision thereby increasing the repo rates by 40 bps to 4.40%, taking everyone off-guard. There are now growing speculations that the central bank might go on with more interest rate hikes in the coming months. An SBI research paper had recently said that amidst the continued rise in inflation, it is now almost certain that the Reserve Bank of India will raise key policy rates in the June and August policy review meetings, thereby taking it to the pre-pandemic level of 5.15 per cent by August 2022. The state lender has though added that even after the rate hikes, inflation will take time to moderate in India.

Mahesh Shukla, Founder and CEO, PayMe India commenting on the affect of repo rate hike on the common man said,"While the hike in the repo rate is aimed towards keeping inflation in check, it simultaneously increases the rate at which commercial banks lend money to borrowers and makes it challenging for people to avail credit. The hike is passed on to the end borrowers in the form of increased EMIs and makes credit costlier for the common man." 

On the other end, Shukla said, the repo rate hike is beneficial for the depositors who have been saving money in various financial instruments with hefty returns on their fixed deposits or savings in banks and NBFCs. 

"As repo rate is increased, this discourages the banks to borrow money from Reserve Bank. When talking about the economy in the broader sense, this can help in reducing money supply in the market and reduces inflationary pressure. This will also prevent foreign capital outflows and the prices of various commodities will be kept under control and inflation will be brought down. Additionally, in the short term, this will further have an impact on consumer demands especially for high ticket products such as consumer durable, housing, cars among others. However in the long term, this will help in maintaining the price stability thus supporting demand for the overall economy," he added.

Meanwhile, Anuj Puri, Chairman – ANAROCK Group said that he does not expect any severe impact on housing demand.

A recent ANAROCK survey disclosed that today’s homebuyers have already factored in a possible increase in the overall cost of acquisition. An increase of up to 10% can and will be absorbed. 

"The majority of buyers today are end-users who do not come to the market with an investor mindset. Also, the fact that real estate is inherently an appreciating asset class over the long-term is one of its main attractions. We may see an interim impact in the budget homes segment, but mid-income and premium homebuyers can accommodate reasonable increases in acquisition costs. For now, the interest rate increase is marginal and while developers will have to offset their increased construction costs by increasing their prices, they will do so judiciously, mindful of the impact bigger hikes can have on demand," Puri added.