RBI Repo Rate Hike: How Will Fixed Deposit, Loan EMI, Real Estate Sector Be Impacted?

RBI Repo Rate Hike: After the RBI hiked the repo rate, the experts said the commercial banks are now expected to respond to the same pragmatically by suitably tweaking the deposit and advances rates of interest.

RBI Repo Rate Hike Latest Update: As expected earlier, the Reserve Bank of India on Wednesday hiked the key repo rate by 25 basis points (bps) to 6.50%. Notably, the central bank this time increased the interest rates six times since May last year, for a total hike of 250 basis points. With this repo rate hike, it is clear that India will maintain its sustainable growth with price stability on the back of GDP growth projection of 6.4% and an inflation projection of 5.3% for FY 2023-24. In response to the RBI announcements, the experts claim that the central bank’s move to raise the repo rate will have an impact on the fixed deposit, lending, and real estate sectors.

Speaking to Live Mint, Jyoti Prakash Gadia, Managing Director at Resurgent India, said while the increase in repo rate by the RBI by 25 basis points is on the expected lines, the commercial banks are expected to respond to the same pragmatically by suitably tweaking the deposit and advances rates of interest.

However, he said that the increase in interest rates on loans has been much higher than those on deposits resulting in robust profits for banks. “With the current increase in repo rate by 25 basis points, we expect the banks to respond positively and procure additional deposits by increasing the deposit rates to attractive levels. The credit growth of banks has been good and they need to attract more deposits. On the credit front as the growth is already visible the increase if any in interest rates needs to be modest. Any substantial increase in lending rates for housing loans will make the loans costlier and EMIs will jump up making these loans unattractive. This may adversely impact the real estate market with a curb on demand when housing loans become unaffordable. The real estate sector at medium level is highly rate sensitive and requisite support is required by keeping the lending rates reasonable.”

Archit Gupta, Founder and CEO, Clear, told Live Mint that as the repo rate is hiked the banks will now have to pay a higher amount of interest to the RBI which in turn shall be collected from the retail/ corporate borrowers of the banks. “This would result in higher interest outflow on loans taken from the banks. Thus the loans in general will become costlier by 1-2%,” he said.

He further added that the rate of deposit would also get increased by some margin, making the FDs more attractive and providing a source of fixed income. “Due to this more people would be inclined to invest in the FDs thereby creating a shortage of free-floating money in the market. This would in turn curtail the expenditure done by the retail customers of the banks,” he said. further added.