Interest rate status quo is good news for homebuyers: Analysts

Today’s decision of the Reserve Bank of India (RBI) to maintain status quo on key policy rates is expected to improve sentiment for potential home buyers.

The RBI's Monetary Policy Committee said today it has decided to keep the repo rate at 6.5 per cent with a unanimous vote, accompanied by a revised growth estimate for FY24 to 7 per cent from 6.5 per cent.

Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE, expressed optimism about the impact of the RBI’s decision on the real estate sector. He noted that the pause on the interest rate is expected to improve sentiment for potential home buyers, while reiterating that the continued pause in rates is likely to significantly boost the real estate sector.

“The pause on the interest rate is expected to push sentiments further for home buyers, and this continued pause in rates is likely to boost the real estate sector significantly. Expected inflation within the comfortable range will further rekindle the hope of a declining rates regime,”Magazine said.

Growth and inflation

Anitha Rangan, Economist, Equirus, highlighted what she termed the nuanced aspects of the RBI’s decision, emphasising the central bank’s approach to balancing growth and inflation concerns. Her analysis pointed out the implications of the RBI’s comfort with the current policy rate, suggesting that the central bank believes the current growth is not inflationary but rather real-demand led growth.

Rangan also noted the revision in the growth estimate for FY 24 to 7 per cent from 6.5 per cent, reflecting the RBI's confidence in India's economic trajectory.

“The big surprise was revision in growth estimate for FY 24 to 7 per cent from 6.5 per cent. Along with expectations of strong growth, RBI has not revised its inflation estimate downward. This means that RBI is comfortable that at the current policy rate, growth is not inflationary but rather real-demand led growth,” she said.

RBI Governor Shaktikanta Das said that there was no need for “OMO (open market operations) sales” with liquidity remaining tight, Rangan pointed out. “This is a big relief to the bond markets, which were edgy on OMO sales expectations. While sounding a point of caution on food inflation getting entrenched and being watchful of the 2nd round effects, the Governor also noted comfort on moderation in core and other components in head-line inflation. In summary, while reiterating their stance of remaining vigilant and watchful, there was a tone of comfort with most global central banks remaining on pause. A pro-growth policy without too much worry on inflation.”

Good and bad

Atul Monga, CEO and co-founder, Basic Home loan, said the RBI's choice to keep repo rates the same will affect home loan interest rates in different ways. On the good side, a steady repo rate means RBI is still supporting economic recovery. This might make banks keep offering good home loan rates to boost housing demand.

But because of inflation, banks might be careful and not lower rates too much. People looking for homes can still find affordable options, but the rates might not go down a lot. He said it is a good idea for potential homebuyers to watch the market and think about refinancing to take advantage of good lending conditions and get the most financial benefits in the changing interest rate situation.

Aalesh Avlani, founder and Director, Credit Wise Capital, pointed out the positive impact of the unchanged repo rate on the credit economy, particularly for customers in rural areas. His insight resonated with the recent robust vehicle sales during the festive season, driven largely by steady interest rates. This observation underscores the potential ripple effect of the RBI's monetary policy decision on consumer spending and economic activity, particularly in rural markets.

“The unchanged repo rate is a positive step for India's credit economy, particularly for customers in rural areas who can now borrow more freely. This was witnessed during the recent festive season, where vehicle sales reached record highs, largely due to steady interest rates and lenders passing on the benefits to customers,” Avlani said.

GDP estimate revision

Raghvendra Nath, Managing Director, Ladderup Wealth Management Pvt Ltd, said: “The RBI's decision to maintain the repo rate at 6.5 per cent aligns with market expectations, considering the recent moderation in inflation to 4.9 per cent in October, albeit still above the 4 per cent target. We continue to witness the lingering effects of the 250-basis point hike in the repo rate, reflecting in the market dynamics.

Raghavendra Nath also pointed out that the Q2 real GDP growth of 7.6 per cent, has surpassed all projections. “This led the RBI to revise the FY24 real GDP growth projection upward to 7 per cent, a testament to our resilient domestic demand. The encouraging signs, including an expanding manufacturing PMI and healthy growth in eight core industries, underline our confidence in sustained robust growth,” he said.

“Moreover, the RBI's stance echoes the global trend of central banks signalling an enduring period of higher rates, further emphasising the need for a cautious yet progressive approach in navigating the financial landscape,” he added.

The cautious approach to food inflation, coupled with observations of moderation in core and other components of headline inflation, underscores the RBI's focus on ensuring a healthy balance between economic growth and affordability, he further said.

Stickiness of inflation

Umesh Revankar, Executive Vice Chairman, Shriram Finance, said while headline inflation has moderated over the last quarter, it still remains above target, testifying to its stickiness. Expectedly, the MPC has once again decided to retain policy rates at earlier levels and continued to withdraw accommodation.

He pointed out that while geo-political hostility worldwide continues to be a challenge, the softening of crude prices is a happy omen. "Despite global trade remaining subdued, India’s domestic economic activity has shown remarkable resilience, as evidenced by the 7.6 per cent growth rate in GDP for Q2. The increase in Government’s investments spending, the revival in rural consumption and the strong growth in infrastructure and manufacturing sectors along with improved consumption numbers, are promising signs that we may be nearing the end of the inflationary tunnel. I believe a regime of reduced rates is just around the corner."

The overall tone of the RBI’s monetary policy decision reflects a balanced approach, emphasising the promotion of growth without undermining the importance of containing inflation. This pragmatic stance aligns with the central bank's commitment to supporting economic expansion while maintaining price stability, he added.