RBI MPC: Loan Interest Rates In The Spotlight; Here's What Home Buyers Can Expect

RBI MPC Meeting: The Reserve Bank Governor-headed six-member Monetary Policy Committee (MPC) meeting is scheduled for October 4-6, 2023. The last meeting of the MPC, the highest rating-setting panel, was in August.

According to industry experts, the Reserve Bank of India is likely to maintain status quo on policy rates for the fourth time in a row at its bi-monthly monetary policy review meeting early next month, as retail inflation continues to remain high and the US Federal Reserve has decided to keep a hawkish stance for some more time.

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Trend

RBI had raised the benchmark repo rate to 6.5 per cent on February 8, 2023 and since then it has retained the rates at the same level in view of the stubbornly high retail inflation and certain global factors including elevated crude oil prices in the international market.

On expectations from the next bi-monthly monetary policy for the real estate sector and impact on homebuyers, experts believe that the RBI will hold on to a status quo position this time as inflation is still high and liquidity tight.

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Rishabh Siroya, founder, Siroya Corp, said, “Realtors have optimistic expectations from the RBI MPC. We are hopeful that the RBI Governor will consider maintaining an accommodative stance to bolster economic recovery. This could translate into lower lending rates, making housing loans more affordable and stimulating home buyer sentiment.”

Siroya added that realtors also anticipate measures to ease liquidity constraints, aiding developers in completing stalled projects and launching new ones.

“The real estate sector seeks assurance of a stable interest rate regime to foster long-term investments. Overall, positive actions from the RBI are anticipated to invigorate the real estate market, promoting growth and stability,” Siroya added.

Anoop Kumar Bhargava, CEO & director, Empire Centrum, said that RBI MPC meetings wield substantial influence over the real estate sector. One key determinant is the repo rate, which the MPC may choose to maintain, lower, or raise.

“A lowered repo rate can make home loans more accessible, potentially spurring demand, and will also help favourable EMI options for the clients Conversely, an increase might modestly temper demand. Liquidity management through tools like Open Market Operations (OMOs) or the Cash Reserve Ratio (CRR) is another facet. Sufficient liquidity assures a steady credit flow, bolstering construction and purchases,” Bhargava added.

“Inflation, a critical consideration, directly impacts property affordability. MPC actions to curb inflation are instrumental in sustaining purchasing power.”

Bhargava highlighted that economic growth and employment rates also shape the real estate landscape. “A flourishing economy with low unemployment fosters confidence and heightened real estate activity,” Bhargava added.

Inflation

It may be mentioned that the government has mandated the RBI to keep inflation at 4 percent with 2 percent margin on either side.

Although the Consumer Price Index (CPI)-based retail inflation eased a bit to 6.83 per cent in August from 7.44 per cent in the preceding month in July, it remained above the Reserve Bank’s comfort level of 6 per cent.

Reserve Bank has projected CPI inflation at 5.4 per cent for 2023-24, with Q2 at 6.2 per cent, Q3 at 5.7 per cent and Q4 at 5.2 per cent, with risks evenly balanced. CPI inflation for Q1, 2024-25 is projected at 5.2 per cent.

The MPC consists of three external members and three officials of the RBI.

The external members on the panel are Shashanka Bhide, Ashima Goyal, and Jayanth R Varma. Besides Governor Das, the other RBI officials in MPC are Rajiv Ranjan (Executive Director) and Michael Debabrata Patra (Deputy Governor).