India raises interest rates a 6th time - will 0.25% hike hold back home sales, loan demand?

Dubai: India has raised its interest rate again, but by 0.25 per cent as policymakers seem to think that the worst of the inflationary pressures are behind them. The lower hike would definitely be a boon for India's consumers and homeowners with mortgages to pay off.

But for new home buyer aspirants, it will still be another cost burden to absorb over the last 12 months. According to Anuj Puri, Chairman of Anarock Group, "The 25 bps rate hike is much along the expected lines. With repo rates at 6.5 per cent, there could be some repercussions on housing uptake as home loan interest rates will head further north.

"The rates had already crept up after five consecutive rate hikes over the last one year. This will add to the financial burden on homebuyers as apart from home loan interest rates, property prices have also inched up in the recent past two to three quarters."

India's stock markets seem to have handled the announcement well, with the Sensex up 460 points by 10.30am UAE time. (Part of the vibes stems from ongoing action with Adani Group stocks.)

India's fundamentals

According to Krishnan Ramachandran, CEO of Barjeel Geojit Financial Services, India's macro situation is much better than other economies, whether on GDP growth or taming inflation. "My expectation is there will be one further hike before India hits the pause on rates," he said.

"The only concern would be how oil prices and gold will fare in the coming months, because these represent the highest portion of India's import bills." (With oil, India has a rupee trade arrangement with Russia, and that helps conserving on dollar reserves.)

Budget 2023-24

The latest budget announced by the central government had been about freeing up more cash for India's consumers, to spend or invest. Ahead of general elections scheduled for next year, the onus was on creating a 'feel-good' factor, especially among the salaried middle-class.

This is why RBI also needs to make sure this upbeat sentiment does not get quashed with repeated rate hikes. "If inflation continues to show positive outcomes combined with encouraging high performance economic indicators, we hope to see fewer rate hikes or negligible rate hikes by the RBI," said Ramesh Nair, CEO, India and Market Development - Asia, Colliers. "Home loan interest rates are already in the higher bracket of 8-9 per cent.

"Housing prices are expected to largely remain firm in the upcoming quarters. On the optimistic side, we hope not to foresee a further rise in the repo rate and a resultant increase in loan rates. This will help sustain the demand and confidence of homebuyers in the market"