RBI Monetary Policy Meeting June 2022 Outcome: What experts say about MPC review – LIVE UPDATES

RBI Monetary Policy Meeting June 2022 Outcome: Reserve Bank of India (RBI) on Wednesday raised the interest rate by 50 basis points to a two-year high of 4.9 per cent as it doubled down to tame inflation that has surged in the last couple of months. All the six members of the Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, unanimously voted for the latest rate hike.

LIVE UPDATES: Here is what experts said on RBI Monetary Policy Meeting June 2022 Outcome:

Dinesh Khara, Chairman, SBI

“Uncertain times demand unconventional measures. Owing to persisting global uncertainties, RBI has hiked rates by 50 basis points and revised the inflation projection to 6.7 percent. The policy statement is a comprehensive assessment of uncertainties and is an affirmation of coordinated policy action by the Government and RBI to thwart the dangers of inflation. Enabling more headroom for Urban and Rural Cooperative Banks for financing the housing sector will bring about a level playing field in the cooperative banking space. Linking Rupay credit cards to UPI will add more avenues and convenience to customers.”

Rajiv Sabharwal, MD & CEO, Tata Capital Ltd.

“The 50 bps rate hike by the RBI is in line with the market expectations. The market has factored in the frontloading of rate hikes to anchor inflation trajectory. The hike, recent government measures and the expectation of a normal monsoon will help in inflation management. The RBI however remains cognizant of the broad-based nature of inflation and the upside risks. The incipient risk arising out of currency dynamics on imported inflation will also have to be watched closely. Over the last few months, RBI has effectively used various tools to reduce surplus liquidity in a calibrated manner. RBI once again assures the markets that adequate systemic liquidity will be maintained which will stabilize the yield curve thereby meeting the needs of the economy. The bond market should derive enormous comfort from this positive assurance.” 

Rajeev Radhakrishnan, CIO-Fixed Income, SBI Mutual Fund

“While the June’22 RBI policy did not deliver any exciting update, it laid out hawkishness concerning inflation. Repo rate was hiked by 50bps to 4.90%. Stance continued to guide for withdrawal of accommodation. CRR was left unchanged at 4.50% as exogenous external account factors continue to drive down excess liquidity from the system. Most eye-catching were upward revision to inflation estimates, thereby acknowledging inflation pressures in the economy. FY23 inflation were revised from 5.7% in April policy to 6.7% in today’s policy, with an additional qualification that average inflation may stay above 6% until December’2022.

Today’s policy was broadly on expected lines and may provide a temporary breather to the bond market. Another 50bps hike in next policy cannot be ruled out. Real policy rates based on expected CPI of 6.7% stays negative even if policy rates move to 6% over the year. A front-loaded policy rate adjustment seems more likely rather than a long drawn-out rate adjustment process considering the domestic and external backdrop. We expect the policy rate adjustment process to be completed over the fiscal year.”

Abheek Barua, Chief Economist, HDFC Bank  

“Today’s monetary policy announcement was aggressive and moves beyond just “frontloading” of interest rates increases. The central bank seemed far more concerned about inflation — reflected in its upward revision in its inflation forecast by 100bps to 6.7%—and relatively more sanguine on domestic growth impulses. 

Clearly the RBI is concerned about the broad-based nature of the increase in inflation and the risk of the second-round impact on inflation expectations. Therefore, the policy rate is likely to be raised well beyond the pre-pandemic level, close to 6% by fiscal year-end.

Bond yields saw an initial relief rally post the policy announcement as the rate hike was broadly priced-in and the fear of a larger rate increase or a CRR hike has been alleviated. That said, with elevated oil prices and rising global yields, this rally is likely to be short-lived and yields could march north yet again.”

Anuj Puri, Chairman – ANAROCK

As anticipated, with inflation edging higher in the aftermath of the Russia-Ukraine war and the surging oil prices, the RBI has decided to increase the repo rates by 50 bps. It is now increased to 4.90%. A hike was inevitable, but we are now entering the red zone. Any future hikes will reflect markedly on housing sales. 

Considering that inflation continues above its target zone of 6%, a hike was inevitable, and it will doubtlessly have some repercussions on housing uptake. The RBI is tasked with controlling the spiralling inflation in the country but must simultaneously be careful to not hurt demand recovery. This is a tightrope walk under the best of circumstances. Overall, high inflation with low GDP can be cause of worry but as of now the Indian economy remains robust. 

The rate hike will push up home loan interest rates, which had already begun creeping upward after the surprise monetary policy announcement last month. Interest rates will remain lower than during the global financial crisis of 2008, when they went as high as 12% and above.  Nevertheless, the current hike will reflect in residential sales volumes in the months to come, more so in the affordable and mid-segments.

The silver lining is that the Indian housing market is still largely end-user driven, so there is no investor mindset seeking the lowest possible entry point. Genuine demand comes from an underlying aspiration for homeownership.

Sampath Reddy, Chief Investment officer, Bajaj Allianz Life 

“RBI hikes key policy repo rate by 50bps to 4.90%, which was along expected lines. The markets were relieved, as there was no CRR hike. However, the RBI did remove the word “Accommodative” from the policy stance and decided to remain focused on withdrawal of accommodation. On the inflation front, the forecast for the FY23 has been raised to 6.7% from 5.7% earlier, due to the elevated commodities prices, which we believe is realistic. On the growth front, GDP growth rate estimates retained at 7.2% for FY23, which is a healthy growth rate in the current backdrop.

Overall, a significant part of the pandemic led “policy accommodation” has been reversed. Bond yields will track global crude oil prices, monetary policy stance of the major central banks and the inflation trajectory.”

Shishir Baijal, Chairman & Managing Director, Knight Frank India

“A repo rate hike of 50 bps was imminent given the current inflationary trajectory and geopolitical concerns. Although the government has taken various measures to control domestic inflation such as food export restriction and cut in excise duty, prolonged war and spike in global crude oil price is still worrisome. From a real estate perspective, home loans are set to get costlier. Banks have already raised the interest rate on home loan by 30-40bps since the earlier repo rate hike by the RBI in May and now with the repo rate cumulatively higher by 90 basis point there will be further increase in interest rate for homebuyers. Rising interest rate along with elevated property construction cost and product price pressures could adversely impact on the real estate buyer’s sentiment. We hope that economic recovery and household income growth will serve as a cushion for sustaining consumer demand in the face of this rate hike. Further, monetary policy tightening by central banks globally and any resolution on the prolonged Russia – Ukraine war will bring price stability”.

Marzban Irani – Chief Investment Officer – Debt – LIC Mutual Fund

“In June MPC most of the announcement was in line with mkt expectations.

Repo rate hiked by 50 bps to 4.90.

Growth numbers maintained at 7.20. However Inflation expectations increased to 6.70 from 5.70. No liquidity announced.

Outlook : Going ahead rate hikes may continue due to higher inflation projections. For this year repo might move towards 5.50 with these inflation projections. Long term yields are expected to remain in range of 7.50 to 7.75. Hence Investors should gradually start looking at long duration funds”

Shrihari  Gokhale, COO, Lentra AI

“While the MPC voted unanimously to increase the policy repo rate by 50 basis points to 4.90 percent, it is important to take into consideration that RBI has three broad mandates besides inflation – one is supporting growth, the other is assessing the government’s borrowings, and finally maintaining the payment and settlement system. And most important they have to balance all these. Today we are seeing that the inflation targeting seems to be slightly misaligned with growth while being a critical contributor to it. But it is critical to understand that RBI slashed the repo rate in 2020 to cushion the impact of COVID and now the focus is back on regulating inflation.  So, as the governor mentioned, we will have some ups and downs, and external influencers, such as crude oil, metals, and food in some cases, which are not in RBI’s control will also have a considerable impact. At this point, RBI will require all its skill and commitment to keep inflation and inflationary expectations under check. And if external forces are controlled to some extent, we may see moderation going forward.

From a lending perspective, this will certainly cause a rate hike in deposits and an immediate impact on retail loans. The overall increase in the cost of funds will definitely impact the overall feasibility of large and long gestation projects. On the other hand, MSMEs that are still recovering from the two years of uncertainty, require assurance of funds rather than cost alone. We believe, they will be able to handle this surge in repo rate, as long as it stays in this range over the medium term.”

Yesha Shah, Head of Equity Research, Samco Securities 

Quite contrary to outcomes of the previous MPC meets, the rate hike and the subsequent steps announced this time have been fairly in line with the consensus estimates. While RBI’s stance has not changed to neutral, the subtle shift from the words “remaining accommodative” to “withdrawal of accommodation” is an important take-away. The MPC also increased its CPI estimates to 6.7% from 5.7% for FY23, which now appears to be a more realistic level. This contributes to enhanced creditability and confidence in RBI’s policy decisions. The status quo on CRR certainly comes as a positive surprise for the banking sector and augurs well to nurture the credit growth revival. Overall, as the repo rate still has catching up to do when compared to global peers, this policy seems to be in the right direction to achieve Governor’s aim to bring back the policy rates to at-least pre-Covid levels.

Shravan Shetty, MD, Primus Partners

 “RBI has increased repo by 50 bps and has indicated this is should be seen as a withdrawal of an accommodative stance. RBI has also revised the inflation expectation to 6.7% indicating that there will be further rate hikes to help reduce inflation expectations. Expect another 50-75 basis points before RBI can look at a pause. RBI has also allowed the use of credit cards on UPI platforms. This is a significant move opening up UPI infrastructure to small loans. This could increase competition for BNPL products with credit card players looking to increase loan wallet share by bringing in new products.”

 

Arjun Bajaaj, Director, Videotex International 

“A hike in repo rate may impact the consumer durables industry in crucial ways. This hike will definitely affect consumer finance, as the cost of borrowing and related interest rates will also go up, as a consequence of this.  About 30-40% of high-value durables in India are bought through finance. This will have a considerable bearing on the sales of consumer durables. With credit to the large companies and industries just beginning to revive, the rate hike could slow down credit growth to the industry too. But over the longer-term, price stability will play an important role in supporting the rising demand. And companies especially in the consumer durables industry will struggle to keep prices stable due to the increase in repo rate.”

Rohit Gera, Managing Director, Gera Developments

“The increase in rates by the RBI is along expected lines.  The cumulative increase of 90 basis points will increase the mortgage payments for home buyers, however, given the fact that the overall increase in cost of homes over the past 5 years has been negligible, this increase in interest rates can be absorbed by borrowers looking to buy homes.  The increase will affect the cost of borrowings for developers already reeling under severe margin pressure on account of  inflation in input costs.”

Rajni Thakur, Chief Economist, RBL Bank

“MPC decisions announced this morning- 50 bps hike in policy rates, resetting inflation projections and no change in CRR- were all broadly along the expected lines. Coming right after an inter-policy MPC in May, which kind of spooked the market a bit, RBI choosing to stay predictable this time will help sooth market sentiments. MPC’s CPI projections for FY23 at 6.7% now are more realistic in view of current geo-political uncertainties and their fall outs.  However, with multiple risks on price levels driven largely by external factors, the rate hikes will help anchor inflation expectations and impact the actual inflation outcome to a much lesser extent. This also, makes it difficult to gauge a terminal rate level for the cycle, even though, continual rate hike expectations till pre-Covid levels have been firmed up by the fact that Monetary Policy stance has changed from “accommodative with focus on withdrawal of liquidity” to “focus on withdrawal of accommodation”. We now expect a further rate hike of 50 bps in August, taking Repo rates higher than pre-Covid levels, followed by pause to re-access the macro-dynamics and hikes in smaller quantum thereafter pushing year end Repo-rates close to 6% levels.”

Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank

“The RBI’s decision today to hike the repo rate by another 50 bps to 4.90% was only a tad higher than our expectation of a 40 bps hike. The MPC’s guidance to stay focused on withdrawal of accommodation was well anticipated. Given the current inflation dynamics in India and globally, the RBI looks set to continue with frontloading more hikes potentially in August and October MPC meetings, before likely shifting to a lower gear for bulk of H2 FY23. The central bank clearly stays focused on long-term price and financial stability and sustainability of growth.” 

Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank Ltd.

“In line with market expectations the MPC decided to increase repo rate by 50bps and also sharply increased inflation expectation to 6.7%. Further they continued to emphasize on withdrawal of accommodation on the liquidity side and retained the  growth target @7.2% . Given the geo political tension, high commodity prices including oil we expect MPC to continue to hike rates in the subsequent policies in this fiscal to manage inflationary expectations.”

Naveen Kukreja – CEO & Co-founder, Paisabazaar.com

“Floating rate retail loans linked to repo rates would have faster transmission of rate hikes. The transmission would be quicker for fresh floating rate loans. However, the exact date of the lending rate hikes by the banks for new borrowers would depend on their rate reset dates set as per their guidelines.  

In case of existing floating rate loans linked to external benchmarks, the borrowers would be charged higher rates based on their next interest reset dates. Till then, they would continue to pay their existing interest rates.       

The transmission of rate increases for fresh home loans offered by HFCs and NBFCs could be a bit slower as HFCs and NBFCs can exercise greater discretion in managing their home loan rates. 

As higher repo rates would eventually increase the cost of funds for the lenders, floating rate loans linked to MCLR and previous benchmarks would be eventually increased by the lenders depending on the change in their cost of funds. The existence of low cost deposits in their liabilities portfolio could absorb some impact of sharp repo rate hikes.

The reversal in the interest rate regime should lead to a steady increase in the borrowing cost in the near term. Thus, borrowers of floating rate loans, including home loans, should expect their EMIs and overall interest cost to steadily increase in the near term. Those who have not opted for the EMI increase option would instead have their loan tenure increased. The increase in interest cost would be higher for the tenure increase option than the EMI increase option. Thus, existing floating rate borrowers having adequate surpluses should try to prepay their loans and preferably opt for the tenure reduction option to generate higher savings in interest cost. 

Home loan borrowers, both fresh and existing ones, having restricted liquidity can opt for the home saver option. Under this facility, an overdraft account is opened in the form of savings or current account where the borrower can park his surpluses and withdraw from it as per his financial requirements. The interest component of the loan is calculated after deducting the surpluses parked in the savings/current account from the outstanding home loan amount. Thus, home loan borrowers would be able to derive the benefit of making prepayments without sacrificing their liquidity.

Existing home loan borrowers who have witnessed substantial improvement in their credit profile; should explore the possibility of interest cost savings through home loan balance transfer. Their improved credit profile may make them eligible for home loans at much lower rates from other lenders.”

Sidharth Rath – MD and CEO of SBM Bank India

“The 50bp hike in policy rate reflects RBI alignment to keep inflation expectations anchored and restrain the broadening of price pressures taking precedence over the challenge of managing growth. The significant upward revision in the near-term inflation forecast well above 7% for Q1 and Q2 of FY 2023 is a lead indicator for more frontloading to come on the policy rate front.

The proposed enhancements to UPI platform in terms of linking of credit cards to UPI, in addition to the existing facility of linking savings and current accounts through debit card, will enhance the universe of digital payments with added convenience to the user.”

Prashant Pimple, Chief Investment Officer – Debt, JM Financial Asset Management Limited

“The policy was on expected lines except for inflation forecast which is slightly on a higher side. RBI hiked repo by 50 bps to 4.90% leaving CRR unchanged. Inflation for FY ’23 has been forecast at 6.70% against earlier forecast of 5.70%, keeping in mind the risk emanating from the ongoing geopolitical conflict and subsequent impact on food and fuel. RBI kept the GDP forecast flat at 7.20% for FY ’23 sighting buoyancy in rural demand. RBI further firmed its stance of withdrawal of accommodation till liquidity conditions normalise. Probably, RBI refrained from any liquidity move in this policy as systemic liquidity has already reduced in light of its previous measures. Yields cooled down a bit tracking the policy, which is more or less on expected lines. We expect rate hikes to continue in FY ’23 with yields in general having an upward bias.”

Rohit Arora, CEO & Co-Founder, Biz2Credit and Biz2X
  
“RBI’s decision today to increase the policy rates by 50 basis points is not a surprise, in fact, we expect a few more hikes in times to come to put a check on inflation and to ensure a neutral to the marginally positive real policy rate. We believe that the lending rates may go up gradually, and since there is enough liquidity in the system, our borrowing cost may go up only gradually. Also, Cash Reserve Ratio is not increased which came as a surprise in today’s announcement. But we should keep a note that RBI will closely watch on it in times to come.”

Manan Dixit, Co- Founder, FidyPay

“The framework on processing of e-mandate based recurring payments, inter-alia, provides for an Additional Factor of Authentication (AFA) during registration, sending a pre-debit notification, subsequent recurring transactions to be executed without AFA, and an easier avenue to withdraw such mandates…..To further augment customer convenience and leverage the benefits available under the framework, it is proposed to enhance the limit from ₹5,000 to ₹15,000 per recurring payment. Necessary instructions will be issued shortly.

It is proposed to allow linking of credit cards to UPI. To start with Rupay credit cards will be enabled with this facility. This arrangement is expected to provide more avenues and convenience to the customers in making payments through UPI platform. This facility would be available after the required system development is complete. Necessary instructions will be issued to NPCI separately

It is now proposed to make modifications to the Payment Infra Development Fund Scheme by, inter-alia, enhancing the subsidy amount, simplifying the subsidy claim process, etc. This is expected to further accelerate and augment the deployment of payment acceptance infrastructure in the targeted geographies. The amendments will be notified shortly.”

Neeraj Dhawan, Managing Director, Experian India

“The Reserve Bank of India has hiked the policy repo by 50 basis points with immediate effect, taking the rate to 4.9 percent, in order to keep inflation within the target limits.

Significantly, the central bank announced steps to enhance digital payments and boost the credit eco-system by allowing customers to link their credit cards to transact through the UPI platform, improving customer convenience. UPI has become a widely used mode of payment in India and currently facilitates around 595 crore transactions in a month amounting to Rs 10 lakh crore only by linking savings and current accounts through debit cards.

Another key step was doubling the limit on housing loans from cooperative banks and permitting Rural Cooperative Banks (RCB) to finance residential real estate projects to support affordable housing and inclusive growth.”

Ruchit Jain, Lead Research, 5paisa.com

“The event day (RBI Policy) witnessed significant volatility as traders were caught on the wrong foot on both sides. Initially Nifty witnessed selling pressure in the first hour of trade, but post the policy announcement it recovered and rallied higher. However, it again saw selling pressure at higher levels and Nifty corrected in the later part of the day to end tad above 16350 from the intraday high of over 16500.

Markets saw a fair bit of volatility due to the event but the trend for the markets has been clearly to ‘Sell on Rise’ as the hourly charts continue to exhibit a ‘Lower Top Lower Bottom’ structure. The derivatives data also indicates cautiousness as FII’s again have more short positions outstanding in the index futures segment.  Other external factors such as rise in the U.S. Dollar index from the recent swing low and rise in Crude Oil prices continue to have a negative impact which can be seen. Until we see a change in the structure or data, traders should avoid bottom fishing and rather look for selling opportunities on pullback moves. The immediate resistances for Nifty are now seen around 16520 and 16610 while supports are placed around 16260 and 16170.”

Saurabh Puri, Chief Business Officer – Credit Cards, Zaggle

“UPI is one of the biggest success stories in India and RBI’s announcement of linking RuPay credit cards with UPI is a progressive move to catalyze digital payments in the country. A lot of small value transactions that are happening today will now automatically come under the purview of credit cards, which is one big advantage to grow the volume of cards and also increase the overall coverage. There is now also a huge convenience factor for the customers because UPI is a frictionless way of transacting. It is still not clear how the Merchant Discount Rate (MDR) will be applied for UPI transactions linked to credit cards.”

Zaggle is profitable SaaS fintech player. It is a soonicorn and a pioneer in digitizing business spends. Zaggle is the largest company operating in the spend management sector in India with 4,500+ clients (which includes the likes of Infosys, Wipro, AT&T, Mitsubishi Electric Corp, Philips Carbon), 12,000+ merchants and over 4.5 million users. It offers innovative solutions such as ‘Propel’, an employee rewards & recognition and channel incentivization solution and ‘Save’, an expense management, employee reimbursements and tax-saving platform among others.

Zarin Daruwala, Cluster CEO, India and South Asia markets (Bangladesh, Nepal and Sri Lanka), Standard Chartered Bank

“The MPC’s unanimous vote on the 50-basis points repo rate hike is a clear indication of its resolve to rein in inflation. With this hike, the operating rate has moved up by 155bp to 4.9% over the past few months. While the MPC has prioritised policy and withdrawal of accommodation, its steps are likely to be measured as the domestic economy recovers. It was heartening to note that capacity utilisation has improved to 74.5% and that GDP growth has been retained at 7.2%.

Linking of credit cards to UPI is an ingenious move that will further augment India’s world class payments systems. It is likely to reduce transaction costs and increase acceptability, thereby aiding the Government’s goal of financial inclusion by making consumer credit available to a wider population. Allowing rural co-operative banks to lend to the residential housing sector as well as hiking home loan lending limits for all Co-op banks, will be a tailwind for affordable housing. Introduction of margin requirements for non-centrally cleared derivative transactions will help reduce contagion risk in the banking system.”

Shanti Lal Jain, MD & CEO of Indian Bank

“As expected, to curb the inflationary pressures, RBI has hiked the policy rates by 50 bps ensuring price stability. The series of measures including reduction of excise duty on Petrol/Diesel announced by the Government are all likely to help in tempering the inflation trajectory. The revision of inflation projection for the current fiscal at 6.7%, adding that RBI is committed to rein-in inflation while keeping growth in mind. More relaxation to Co-operative Banks will further help in bank credit growth and financial inclusions.

Much thrust has been given on Digital penetration by enhancing limit of e-mandate on cards, linking of UPI to Credit Cards (Rupay) and enhanced subsidy on PIDF (Payment Infrastructure Development Fund) scheme.

There is a gradual recovery in the economy and hence the withdrawal of accommodation in a calibrated manner is supportive to the growth while containing the inflation.”

Akash Sinha, CEO and Co-Founder, Cashfree Payments

“We welcome the RBI’s move to allow credit cards (starting with Rupay) to be linked to the UPI accounts. This is an important step for enabling credit payments via UPI, which until now was only possible through linking overdraft accounts. Other options included linking savings and current accounts to UPI via debit cards/ Aadhaar. We believe that this will significantly contribute to the Digital India imperative. In May 2022, UPI processed more than Rs. 10 trillion worth of transactions, witnessing a doubled volume and value of transactions in a year’s time. Cashfree Payments is a certified and compliant payments solutions provider and we believe in an inclusive nature of services and products which also resonates with UPI operations. The central bank’s announcement is well-timed and provides us with an added encouragement to continue our efforts to assist the payments industry accelerate the digitalization journey and promote financial inclusion.”

Gaurav Chopra, CEO, IndiaLends 

“Credit cards serve two primary purposes: convenient payments and short term liquidity. Keeping that view, enabling UPI for credit cards is a logical and welcome step. UPI has already proven its utility by its widespread adoption, and bringing the same convenience to access credit can be a watershed moment for credit penetration in India. Today, UPI is practically omnipresent, and I do not doubt that UPI enabled credit cards will foster the next phase of credit backed growth for hundreds of millions in our country.”

Kumar Shekhar, VP Member Operations, Tide (IN)

“The RBI Governor announcing the linkage of credit cards to UPI accounts is indicative of a major shift in how UPI will operate and function. Considering that the announcement comes at a time when UPI has become the most inclusive mode of payment in India, with over 26 crore unique users and 5 crore merchants on the platform, this new arrangement will offer added convenience to users and enable them to seamlessly track their spending. But more than that it will boost India’s digital payment and e-wallet ecosystem while attracting more stringent security measures, such as two-factor authentication. Amidst this, it will also be interesting to watch the application of Merchant Discount Rate (MDR) to UPI transactions. As of now, RuPay and UPI have a zero MDR policy and the merchant does not have to pay any transaction amount. This is a key factor for the massive adoption of UPI. However, credit cards work on a completely different model and have the highest MDR. While more clarity will be required from the central bank on this, the move will definitely increase the market share of the most preferred mode of payment, UPI, which currently stands at 56%.”

Siddarth Bhamre, Head of Research, Religare Broking Ltd. 

“Globalization of inflation and cascading impact of it is what all central bankers are dealing with at this point in time and we are no different. As the Indian economy has shown resilience, RBI Governor and MPC has started withdrawing the accommodative policy stance and made controlling inflation as the priority and thereby increased policy rates by 50 bps to 4.90%. Recent supply side measures taken by the government to mitigate inflationary pressures made us believe that rate hike may not be as steep. However inflation has been stubborn and from RBI’s projection it is not expected to reduce below the upper band before the last quarter of the current financial year.

This cumulative 90 bps hike in interest rates in the last two policies may safeguard the economy from high inflation. And several positives like domestic consumption, higher GST collection, increasing capacity utilization, deleveraged corporate balance sheet will ensure that growth may not take a back seat.

After April policy when RBI did not increase policy rate contrary to market expectations, we stated that RBI is saving its arsenal for the future use and now the central bank is firing them to control inflation. We believe RBI’s approach has been a balanced one before and now it has targeted inflation head-on. With the government and RBI both working towards controlling inflation, we believe the pace of rate hike may not be as aggressive as seen in the last two policies.”

Kalpesh Dave, Head Corporate Planning & Strategy, Star HFL 

“Expected repo rate hike of 50 bps to 4.90% by the MPC in RBI June policy meeting shows that we are now firmly in to the rising rate cycle as the focus of RBI has been shifted to contain inflationary pressures. One expects at least another hike during the financial year thereby repo rates getting back pre pandemic levels. We expect existing and new home borrowers to brace for increase in home loan rates through the year and plan their financials accordingly. It makes sense for existing borrowers to engage with lenders to see if they can maintain their EMIs through increase in balance tenor for floating rate loans and also after a careful cost-benefit analysis may seek to switch to fixed rate loans, as it would give visibility on EMI outflow on a sustainably. Announcements of raising individual housing loan limits for cooperative banks and allowing them to finance residential projects bode well for the credit flow to the housing sector”

Kaushal Agarwal – Chairman, The Guardians Real Estate Advisory

“The RBI’s decision to hike the repo rate was aimed at re-anchoring inflation expectation and will eventually result in the strengthening of the economy. An unstable economy is not conducive to the overall health of the real estate industry and therefore, the RBI’s approach towards reviving the economy so far has enabled a robust recovery in the real estate sector. The all-time low home loan interest regime boosted the housing demand and helped the economy to get back to the pre-COVID levels. The rise in property prices due to the increased interest rates, metro cess and higher stamp duty has not affected the sales in the past couple of months which proves that there is a genuine demand. The move to hike the repo rate might temporarily limit the growth momentum of the sector but the demand will continue to sustain.”

Pritam Chivukula – Co-Founder & Director, Tridhaatu Realty and Treasurer, CREDAI MCHI

“After two years of unchanged repo rate, RBI ‘s decision to hike the interest rates to tackle the inflation was a no-brainer. The sharp acceleration of rates consecutively for the second time in a short period will have a short-term effect on the sentiment of homebuyers. The interest rates have been the biggest factor in the resurgence for real estate demand in the last two years. We hope that the State Government will step to lighten the homebuyer load by reducing stamp duty and premiums.”  

Himanshu Jain, VP – Sales, Marketing and CRM, Satellite Developers Private Limited (SDPL) 

“The prices of construction materials are already high and the decision of increasing the repo rate will somewhat dent the current demand momentum and add to the woes of developers. However, keeping the current market conditions and inflation in mind, the move by RBI was expected to keep the economy on the track in the current highly volatile scenario. For first-time buyers, acquiring a home is considered as the biggest asset and these short-term decisions are unlikely to have a major impact on a buyer’s decision.”

Jitendra Shah, CEO, Rockford Group

“RBI’s decision to hike the repo rate was anticipated to keep the inflationary expectations under check. From the real estate perspective, this move will impact the overall growth of the industry by dampening sales momentum while property prices are already on rise. However, we believe that this may also encourage the fence-sitters to make the most of the current schemes offered by developers in the market and take the plunge.”

Shraddha Kedia-Agarwal, Director, Transcon Developers

“The recent announcement by the Reserve Bank of India on increasing the repo rate by 50 bps, bringing them to 4.90%, will affect the real estate sector to an extent. Banks will soon likely to increase the home loans that will directly impact the consumer’s buying behaviour. The real estate industry was expecting this move owing to tackle the tight inflation of the country. However, we believe that preference for owning a home by homebuyers and strong wage growth will continue to support the housing market.’’

Dr. Sachin Chopda, Managing Director, Pushpam Group

“RBI’s decision to hike the policy repo rate by 50 basis points was anticipated, factoring the rise in inflation. The rate hike is likely to shrink liquidity in the economy overall, especially impacting the investor’s sentiments. There will be a short-term pause on the minds of the investors while assessing the volatility of the current market dynamics. However, they are bound to return soon in the market once the normalcy is bounced back.”

Bhushan Nemlekar, Director, Sumit Woods Limited
 
“Due to geopolitical conflict, the input costs were already high and now with this rate hike, it will only dampen the spirit of the entire real estate value chain. Cost of borrowing for both developers and buyers will be impacted and this will result in undesired rate hikes across the spectrum. However, we did not see much impact on the buying spree in the last couple of months since there are genuine buyers in the market to keep the momentum going.”

Jitesh Lalwani – President, HomeSync Real Estate Advisory 

“RBI’s decision to hike in policy rates will lead to increase in housing loan interest rates impacting on the EMIs but we are still bullish about the real estate sector. Homebuyers are more concerned over skyrocketing property prices rather than rising interest rates. We are still optimistic about the current growth run for housing demand since we believe that this move may push homebuyers who are still deliberating to seal the deal. However, we urge the Government to take some necessary measures to control the rise in property prices.”

Jigar Trivedi – Research Analyst- Commodities & Currencies, Fundamental, Anand Rathi Shares & Stock Brokers

“India’s central bank raised the key policy repo rates by 50 basis points to 4.9%, rising for the second straight month and joined the league of central banks that has increased rates by half points in order to tame the surging inflation. Meanwhile, RBI telegraphed the withdrawal of accommodation going forward and raised inflation forecasts to 6.7% for FY23.

Though rate hikes might not help much in the supply side inflation, they could cool down the demand. Going forward, we might see the Rupee spot weakening towards new all-time lows amid weak fundamentals. Elevated crude oil prices, bounce back in the dollar index and persistent FII outflows ahead of FOMC meeting might prompt gradual depreciation in Rupee towards 78.2 levels.”

Ravi Subramanian, MD & CEO, Shriram Housing Finance 

“The RBI today continued to frontload rate hikes to anchor inflationary pressures through a 50 bps hike in the repo rate. With a cumulative hike of 90 bps over two months, the central bank reiterated its stance of ‘withdrawal of accommodation’ to a more neutral scenario, while highlighting that the repo rate is still below the pre-pandemic level of 5.15%. 

Attributing the rise in inflation to elevated crude oil and other commodity prices and the global geo-political environment, the RBI today increased the FY23 inflation forecast to 6.7%, but retained the FY23 GDP outlook at 7.2% citing an expected rise in investment activity, government capex and growth of the deleveraged corporate sector. Amid improving consumption and revival in both the rural and urban economy, demand for housing finance continues to be buoyant led by steady real estate prices and as more people and companies return to the work-from-office model.”

 Ramesh Narasimhan, CEO, Worldline India 

“RBI’s statement on Developmental and Regulatory Policies has touched upon all critical aspects in online and offline payments space. It is fueling the growth in digital payments across different consumer segments.

On e-mandates:

As consumer confidence is growing towards the adoption of digital payments, their preference for convenience is increasing as ever. Today’s announcement to enhance the limit of e-Mandates on Cards for Recurring Payments from Rs. 5000 to Rs 15000 is a welcome move as it will not only benefit consumers to set mandates for multiple categories of payments but also include more players from the insurance, education, and loan sectors. 

On UPI linking to Cards:

UPI today is by far the most popular payment option for consumers online. In order to further deepen the reach and usage of UPI while keeping consumer preference at the epicenter, the RBI has offered an innovative solution to permit the linking of credit cards on to UPI platform. This will not only encourage consumers to continue making payments via UPI but also provide the benefit of short-term credit that credit cards extend.

On PIDF:

Concentration on enhancing the digital payment acceptance infrastructure is crucial for the growth of the ecosystem. Enhancing the subsidy amount and simplifying the subsidy claim process, etc will encourage more players to set up merchant acquiring services like POS and QR and this will eventually accelerate the deployment of payment acceptance infrastructure in the targeted geographies.”

Dilip Modi, Founder, Spice Money

“The introduction of RBI’s PIDF Scheme has provided a big boost to financial advancement in India’s semi-urban and rural economy, especially at a time when this segment needed immediate support to jump back into the economy. Testimony to this lies in the RBI announcement today, which states the establishment of 1.18 crore POS, overachieving the target of 90 lakh, in less than one and a half years. We welcome the announcement made today to enhance subsidies and simplifying the subsidy claim process. We believe this will further encourage nanopreneurs across the country to adopt this model, with renewed commitment.

Accessibility and availability of financial services are major challenges that hamper financial inclusion of rural and underserved segment. As a rural fintech platform, Spice Money has been working towards extending digital payment and other financial services by empowering the rural entrepreneurs and Kirana store owners. We are committed to our vision of digitally and financially empowering over 1 crore rural entrepreneurs. With our million-strong Adhikari network, 90% of them already operating in Tier 3 to Tier 6 cities, we are committed to keep supporting this initiative and playing our part in RBI’s endeavour to channelize digital payments pan-India.”

Muralidharan Srinivasan, Head of Payments, APMEA Region, FIS

-Credit Cards to be linked to UPI platform; to begin with Rupay credit card to be linked

“Linking of credit card to UPI was always expected and will turn out to be a great payment option. This will further increase the usage of UPI even for large ticket items as the users can have balanced option to choose how they can pay. Thus, it will widen the digital payments footprint in India, bolster merchant partnerships of card networks starting with home-grown payments system- RuPay and eventually other international players like Visa and Mastercard and elevate customer payments experience. Additionally, it will pave way for other geographies to adapt UPI much faster and easier. UPI is becoming the default payment mechanism; the latest benchmark being Rs 10.4 lakh crore transactions processed through UPI in May 2022 and it will evolve into many more embedded payments in the near future. RBI’s latest announcement for the extension of linking UPI to credit cards is a great move towards the cashless economy.”

 -Hiking cap on e-mandate for card recurring payment

“With pre-paid payment instruments and card transactions gaining traction, the RBI’s move in hiking cap on e-mandate for card recurring payments is a big one. A win-win for both: banks and customers; the proposed enhanced limit from the older Rs. 5000 to Rs. 15,000 will empower customers to stay in control of their own recurring payments. The future transaction experience for them will be hassle-free as recurring payments of high values up to Rs.15,000 will not need an additional factor authentications (e.g. OTPs), after registration. Additionally, e-mandate with the increased cap for recurring payments will become a standard for making many common payments from rent to receivables, various maintenance payments and possibly embed into emerging IOT functions.”

Suman Banerjee, CIO, Hedonova

The increase in Repo rate is RBI blaring its teeth. This is very welcome for the banks as evident in their rising stock price today but not very good for the broader economy.

A higher repo rate sucks money out of the system and tames inflation. The RBI however said they expect inflation to increase by 1% over the next year, which, in my opinion, renders today’s rate hike in vain.

Umesh Revankar, Vice Chairman & MD, Shriram Transport Finance

“The RBI, largely on expected lines, hiked the repo rate by 50 bps with the MPC focussing on ‘withdrawal of accommodation’ to ensure inflation remains around the medium-term inflation target, while supporting growth. As the inflationary expectations have been rising, the RBI hiked the FY23 inflation forecast to 6.7%, but retained the FY23 GDP forecast at 7.2%.

The rise in inflation is largely attributable to global crude oil prices and the geo-political environment. The RBI has been taking measures to tame excess system liquidity while the Government is managing inflation by reducing tax on petroleum products and restricting exports of essential commodities. We believe the regulator may not hikes rates very aggressively hereon, and will continue to monitor the evolving growth-inflation dynamics. While surplus system liquidity has come down, the RBI has said they will ensure adequate system liquidity for productive purposes. As a result, we do expect borrowing cost to go up gradually. It was heartening to see that RBI expects a pick-up in investment activity and an improvement in both urban and rural demand conditions. There continue to be some challenges, but we do expect to see a pick- up in new vehicle sales as investment activity and government capex spend  in the economy while used vehicle demand continue to be robust.”
 
Dr. Mohit Batra, Founder & CEO of MarketsMojo

RBI announced a 50bps rate hike, in line with our estimate. But what has surprised us is that RBI continues to believe the GDP will grow at 7.2 per cent, which we think is an optimistic number. Thus, projected inflation numbers revised upward are in line with our expectations. We expect more rate hikes from the RBI in the coming months. While predicting inflation, RBI has assumed crude at $105 per barrel from its previous estimate of $100 per barrel. Right now, crude is trading at $120 per barrel. Therefore, there is a high probability that the inflation number may get revised upwards in the coming monetary policy.

Rupesh Nambiar, CFO, Global PayEX  

“Governor Shaktikanta Das’s announcement today comes at a pivotal moment for the Indian economy. While his announcement focused on increasing the repo rate by 50 bps focuses on the RBI’s medium-term goal of reining in inflation and balancing risks to India’s economic growth, it is the long-term focus on making the banking, payments, and lending infrastructure more resilient that make the highlight of this announcement. In light of this there are three important policy decisions.  

 First, is the decision pertaining to the transaction limit on e-mandates for recurring payments. While there are 6.25 crore mandates with Indian merchants, only 3,400 mandates have been secured with international merchants. The RBI’s decision to increase the limit per transaction, from INR 5,000/- to INR 15,0000/-, is going to bring in more international merchants within the fold of the Indian payments infrastructure, and further drive cross-border payments. Second, pertains to the decision to link credit cards, starting with RuPay, to the UPI platform. This must be seen in the context of the fact that an increasing number of countries, such as Nepal and Singapore are linking UPI to their digital payments framework as well. Additionally, credit card spends in April 2022 have increased by 79% y-o-y. In May 2022 itself 2.4 lakh crore transactions were processed via UPI. By linking credit cards as well as the digital payments network of other countries to the UPI platform, we will witness a surge in the number and in the volume of transactions processed. Third, relates to the subsidy claim process under the Payment Infrastructure Development Fund Scheme, which has set the target of increasing adoption of POS, QR codes, and mobile payments across tier 3 to tier 6 cities. This scheme is critical to ensure that a huge chunk of the Indian population is not left out of the burgeoning digital payments infrastructure. By extending, and simplifying the subsidy claim process, the RBI is doubling down on India’s digital payments infrastructure by incentivizing adoption and growth in non-urban areas. This is crucial to increase access to financial services.

 In conclusion, the RBI’s policy decisions pertaining to digital payments promise an optimistic future for the Indian payments infrastructure. We believe that central to this future is the growing collaboration between banks and Fintech companies, which will drive the Indian digital payments infrastructure to new heights.”

 Avnish Jain – Head Fixed Income, Canara Robeco Asset Management Company Limited. 

“The outcome of the third monetary committee (MPC) policy of FY2023 was on expected lines, unlike the off cycle surprise rate hike on May 4th 2022. The MPC unanimously agreed to hike the repo rate by 50bps to 4.90% and continuing with stance of “remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.” The MPC did not make changes to CRR, which some section of market participants expected. The MPC retained the GDP forecast at 7.2% for FY2023 whilst increasing the inflation forecast to 6.7% for FY2023 (from 5.7% in April 22 policy). This in light of increased pressure on commodities from geo-political tensions as well as supply disruptions in aftermath of pandemic closures. The MPC now expects that inflation to fall to below the MPC’s mandate of 6%, only in 4QFY2023. While inflation concerns remain at the forefront, RBI took comfort from recent government measures and some moderation in inflation expectations.
 

Market reacted positively to the policy as a rate hike was on expected lines. 10Y rallied from a low of 7.56% to current level of 7.45%. Money market rates had a relief rally as no aggressive posturing was seen from the MPC statement. Short term yields dropped by 10-12 bps. The Governor reiterated that the tightening would be calibrated, and liquidity will remain adequate. With 90bps upfronting of rate hikes, future rate hikes may be smaller steps, and that is seen as positive by the markets. In the short term, markets sentiment may remain positive. Inflation may trend lower in May 22 (as compared to April’22), which may add to the positive sentiment. 10Y yield is seen in a range of 7.25-7.50% in near term.”

Vivek Goel, Co-founder and Joint Managing Director,  Tailwind Financial Service

Huge push to digital payments as UPI gets linked to credit card

UPI has been a large part of the digital push that has transformed payment infrastructure in the country. As per Governor Shaktikanta Das, there are over 26 crore unique users and 5 crore merchants on the platform, making it the most inclusive mode of payment.

Till now, UPI was provided through linking of debit cards linked to savings accounts. With the latest announcement by RBI, it is proposed to be linked to credit cards starting with RuPay aimed at providing additional convenience to users and enhancing scope of digital payments. While the implementation timeline will have to be seen as banks and other stakeholders working with NPCI on the extent of changes required to enable the system.

As per RBI statistics, the number of credit cards issued is at ~75Mn. The overall impact on digital payments is expected to be significant as this opens up credit payments or short term loans on UPI payments as opposed to only the option of immediate debit from bank account under the current system.

MPC conservative in front-loading rate hike to keep inflation in check

Overall, the policy outcome was in line with expectations in terms of tightening stance and the same is expected to continue in the next policy in terms of rate hike. This is supported by the upward revision of inflation which has been a growing concern globally. Risks to projections remain as crude oil prices are projected at average $105 as opposed to current $120 levels as well as further impact from global supply shocks due to developments on the geopolitical front.

From a consumer perspective, this would imply an immediate impact on loans linked to repo rate which would be repriced faster, while other floating rate loans would also have higher interest as per their reset dates over the next 3 months. Consequently, gradually we can also expect that the deposit rates should start to be revised up over the next couple of quarters. On the bond yields side, 10Y G-sec yields were tracking lower immediately after the policy at around 7.45-7.46%

Ashish Narain Agarwal, Founder & CEO, PropertyPistol.com

“The Reserve Bank of India (RBI) announced the increase of 50 BPS to 4.90% in the repo rate. This move is expected to balance the rising inflation in the country. This may have an immediate impact on home buying resulting in a dampened buying sentiment, although it may very well be considered only as a situational trigger.

Most of the time banks may not immediately burden the loan seekers with an increased rate. Alternatively, buyers may think of increasing the loan tenure by keeping the EMI amount intact, which can provide respite to some extent. They should also plan their finances in a way that there is some buffer kept for price hikes and interest rate hikes in such a situation.

If the Government intervenes in anti-inflation measures and the construction costs fall, then the market will be cheerful for the future. Apart from novel trends, the sector is witnessing new project launches, seeing growing demand from home buyers, opening new locations in tier 2 and 3 cities through institutional funding, boosting NRI’s confidence, and has an overall optimistic environment. Hence, considering these several factors that make the Indian real estate market bullish, the current repo rate hike may not have a long-term impact.”

Atanu Kumar Das, MD & CEO, Bank of India

“Policy announcement is on expected lines, reflecting the Central Banker’s continued focus on a non-disruptive trade off between growth and price stability, in a calibrated manner.”

Puneet Pal, Head-Fixed Income, PGIM India MF

The MPC Policy was on expected lines as the repo rate was increased by 50 bps which the market was expecting, though inflation forecast for FY23 is higher than market expectation at 6.70%. We expect that RBI will continue to front load rate hikes with another 50 bps hike in repo rate in the August Policy. We would recommend that investors increase their investments in actively managed short duration products while selectively looking at dynamic bond funds as per their risk appetite.

Sumit Chanda, Founder and CEO, JARVIS Invest

“The rate hike was as expected. The governor has increased the inflation forecast for FY 23 to 6.7% which doesn’t bode well. RBI is taking the right steps to tackle inflation while not compromising on growth. With inflation persisting above comfort levels due to the supply constraints, any relief from that perspective will be good for the markets. With the growth rate for FY 23 retained at 7.2%, this would be the right time to buy the “India” story with a medium to long term perspective.”

 Dr Vikas Gupta, CEO, OmniScience Capital

The RBI is clear on 3 things:

1. That the real driver of inflation is supply-side based and cannot be controlled by raising interest rates.

2. Interest rates have to be raised to keep the “inflation expectations” in check.

3. Liquidity has to be brought back to the pre-pandemic level while accommodating and supporting growth.

Growth in the economy is strong, exports are strong, imports of capital goods are strong, bank credit growth is strong and PMI (services and manufacturing) is strong, monsoon is expected to be normal. Forex reserves are at $600 billion+. Rupee is behaving better than most other currencies. Further, increases in interest rates are likely to keep matching the advanced economies central banks. Also, reduction in liquidity to pre-pandemic levels is likely. It will take all of FY23 to bring inflation under control as per RBI expectations”  

Market outlook

Most of the known negatives such as Reserve Bank of India (RBI) US Fed rate hikes,  Russia-Ukraine war, liquidity reductions, global supply chain constraints, high commodity prices, general inflation, etc. are priced in, However, what cannot be priced in at any point in time is black swans which are unpredictable.

Hence, at current prices, even with higher discount rates, both Indian and US equities are quite attractively priced and it makes sense to start allocating money to them over the next few months.

One can look at Defense, Railway infrastructure, and Digital transformation (mostly IT stocks with exports) companies; all these will not be impacted by recession at all since their order books are not consumer driven”

Growth outlook

There is some apprehension on account of increasing interest rates, related inflation, higher commodity and crude oil prices, and global supply chain constraints, etc. This could play out over the next few quarters with slightly slower growth and compressed margins in the near term.

However, a clear growth outlook over the next few years has boosted business confidence leading to large capex plans targeted at capturing growth, so I believe; overall the business outlook is quite confident about growth over the next three to five years.”

Anurag Mathur, CEO, Savills India

“The second scheduled Monetary Policy Committee (MPC) meeting of the fiscal year, on expected lines, increased the benchmark lending rates by 50 basis points, taking the cumulative increase to a significant 90 bps in the initial few months of FY23. Brent crude prices breaching USD 120 per barrel and domestic retail inflation at an 8 year high in April have played a pivotal role in recalibration of growth prospects. With geopolitical tensions resulting in globalisation of inflation, the World Bank and RBI have revised India’s GDP growth rate to 7.5% and 7.2% respectively for the ongoing fiscal year. Leading private and public sector banks have already passed on the previous repo rate hike, by increasing home loan interest rates by 30-40 bps across loan categories. The increase in benchmark lending rates by 90 bps in a short span of time, coupled with the anticipation of further rise in coming months will increase the home loan EMIs significantly as compared to the previous fiscal year. Thus, of all residential real estate segments, the impact on EMI dependent affordable segment will be highest. Noteworthily, the increase in cost of borrowing is expected to be tangible for developers on the supply side as well.”

Shrey Aeren, Managing Director & Country Head of Berkshire Hathaway Home Services Orenda, India 

Controlling high inflation has been the focus for RBI and central banks across the globe. The rate hike acts as a psychological barrier, even in the premium housing segment which we deal in. The impact will be much more on the affordable housing side, which is primarily driven by sentiments and with increased prices recently announced by the builders, there will be double burden on consumers. We hope that the war between Ukraine and Russia ends soon which is creating an inflationary pressure on the global economies. Besides the war, free printing of money during covid in US economy also created inflation.

Madhavi Arora, Lead Economist, Emkay Global Financial Services 

“The 50bps rate hike in policy repo rate is in line with our expectations of RBI remaining front-loaded on rate hikes, after un-anchoring markets’ policy expectation in Apr/May. 

The stance continues to be focussed on withdrawal of accommodation. The triple whammy of commodity-price shocks, supply-chain shocks and resilient growth, has shifted the reaction function in favor of inflation containment. The reaction function is now evolving with fluid macro realities. The inflation prints of next two quarters are likely to exceed 7%, which could pressure the RBI into acting sooner rather than later.

FY23 could thus further see rates going up by 75 bps+, with the RBI now showing its intent to keep real rates neutral or above to quickly reach pre-Covid levels.

Our Taylor’s estimate shows a max tightening of policy rate by 6% by FY23, of which liquidity tightening to 2% of NDTL is tantamount to another estimated 25bps of effective rate hike. 

However, the front-loaded rate-hiking cycle does not imply a lengthy tightening cycle, and once they reach the supposed neutral pre-Covid monetary conditions, the bar for further tightening incrementally may be higher amid increasing growth-inflation trade-offs.”

Rohan Pawar, CEO of Pinnacle Group

“During the pandemic, the low interest rate regime had boosted the housing demand. RBI’s decision to hike the interest rate again by 50 bps to 4.90 was expected to tackle the tight inflation of the country. The increase of rates could adversely affect housing demand because of increased EMIs and lower eligibility on home loans. This will create an impact on the ongoing growth momentum in the sector in addition to increasing input costs. However, we still believe that preference of homebuyers for owning a home will continue to boost demand.”  

Kenish Shah, Co-Founder, PropReturns

“The further bump in the Repo Rate to 4.9% to battle inflation will bring huge investments into the real estate industry. Savvy investors will now stray away from fixed-income investments such as FDs and government bonds that are losing to inflation. The smart move at this point will be to diversify their portfolio using higher-yielding assets like Commercial Real Estate. As seen in patterns before, rental yields in commercial real estate will be pushed up due to the sudden hike in interest rates and will become a powerful wealth creation tool for many investors. The hike in interest rates is a boon for the real estate industry.”

Amar Ambani, Head – Institutional Equities, YES SECURITIES 

“On the expected lines, RBI unanimously re-emphasized its endeavour to contain inflation through withdrawal of the accommodative stance and normalisation of the policy rates. 50bps hike in the repo rate was very much factored in the 10yr yields which moved above 7.5% before the policy outcome, only to retreat lower to 7.45%. Markets are taking respite from the fact that the central bank did not move on the CRR hike, as feared earlier.  On inflation, RBI now sees CPI average for FY23 to 6.7%, 100bps higher than the earlier estimate, with the revision primarily attributed to food prices. CPI inflation is likely to remain above the tolerance level of 6% till December 2022 and fall to 5.8% in Q4 FY23. RBI emphasized that the recent fiscal measures have moderated the inflation expectations. However, the inflation projection seemed to be a conservative one, as it assumes Oil to have peaked out and monsoon rainfall to be a normal one. So, the CPI projections are subject to revisions, depending on the magnitude of the supply-side risks. On growth, RBI retains GDP growth for FY23 at 7.2%, emphasising improving aggregate demand and capacity utilization in manufacturing. On the policy rate outlook, the pronounced priority to combat inflation has paved the path for further rate hikes, with the repo rate seen proximal to 5.75% by the end of FY23.”

Raghvendra Nath, Managing Director – Ladderup Wealth Management Private Limited

“The inflation has been above the RBI’s target range of 2-6% since the beginning of the year. With the ongoing Ukraine war and the COVID issues in China, the supply chain disruptions continue to affect global inflation. So, a rate hike of 30-50bps was expected by the RBI. The RBI has revised the inflation for FY23 to 6.7%, so inflation will continue to hurt the consumer pockets and company bottom-line for the coming quarters. We may see the food inflation coming down if the expectation of a normal monsoon this season turns out to be true. CRR was expected to be raised, but it seems RBI has decided to maintain the liquidity with banks for now.”

Ramesh Nair, CEO, India and MD, Market Development, Asia, Colliers

On expected lines, RBI hiked repo rate by a further 50 bps to 4.9% while continuing to move away from its accommodative stance. The hovering inflationary concerns amidst the resilient domestic economy supports this RBI’s aggressive move. Despite the challenging global environment, Indian economy is strongly placed and on the path to recovery and GDP growth is pegged at 7.2% for FY 2022-23. On a cumulative basis, this translates into an almost percentage point increase in repo rate in the last 1 month. However, it remains lower than the pre-pandemic level of 5.15%. We expect banks to gradually pass on this rise in the form of higher home loan rates in the coming months. An opportune time for homebuyers to take advantage of the prevailing home loan rates at a time when prices are also expected to rise in most of the markets led by revival in demand.

Amit Goyal, CEO, India Sotheby’s International Realty

RBI decision to hike the policy rates is on the expected lines. With inflation lingering obstinately high, RBI had little choice. We hope the hike in repo rate would rein in rising commodity prices and ensure sustainable growth in the long term. At the same time, we don’t see any major impact of the demand side in the housing market, which continues to remain strong. We are hopeful with the supply side measures taken by the government,   inflation will cool down by the year-end, and the central bank will revert to a lower interest rate regime.

Saransh Trehan, managing director, Trehan Group

RBI decision to increase the policy rates by 50bps is not a surprise, infect we expect few more hikes to put check on inflation. The hike in policy rates will result in increasing the cost of borrowings and it may hit the cost of construction by 5 to 7 percent. We don’t expect a big impact on housing demand as of now.

Sujan Hajra – Chief Economist and Executive Director, Anand Rathi Shares & Stock Brokers

The 50 bps rate hike by the Reserve Bank of India today is higher than our expectations of 40 bps rate hike. The measures today are consistent with sharply upwardly revised inflation and unchanged growth projections for the current financial year by the Reserve Bank. Also, continued high inflation, aggressive rate hike plans of the US Federal Reserve, strengthening of U.S. dollar and portfolio capital outflow from emerging market economies including India are factors which influenced the decision of the Reserve Bank of India. The central clearly is front loading the monetary policy tightening to normalise the rate to the pre-pandemic level quickly. Thereafter, the Reserve Bank is likely to scale down the extent of rate hikes to instalments of 25 bps each. At the peak, we expect the Reserve Bank of India to take the repo rate to the 6-6.5% range during the ongoing rate hike cycle. While the major part of rate hike by the Reserve Bank of India are already factored in by most parts of the financial market, in the near term, the higher than expected rate hike can have some negative influence in the equity and bond market.?
 
Anjana Potti, Partner, J Sagar Associates (JSA)

“With the retail inflation at 7.79% for April 2022, highest since May, 2014, the recent statements from the Governor, and signals from other major central banks, the hike does not come as a surprise. The only question that remained was  how much of an increase in the short term would address this. In the April MPC, the RBI had attempted to buttress economic recovery by maintaining status quo on the rates, only to increase the rates and the cash reserve ratio, through an off-cycle MPC, to control the galloping inflation. The RBI is fighting an uphill battle in the current geo-political situation to keep the inflation below the benchmark of 6%, which it has missed for the past four quarters. We can expect further  jumps in the in the next few quarters. The recent off-cycle hike has had an  impact on the housing sector which had started picking up after two years of a lull, and this increase is going to dampen the spirits of homebuyers. The manufacturing sector will also see a pull back on the numbers as the retail purse strings tighten.   An impact on the stock market is also inevitable. In May, after the surprise increase, the markets also saw a sharp downfall with the BSE falling more than 1,400 points and the NSE settling below 16,700, recording a fall of 391 points, leaving investors poorer by almost 6.27 lakh crores. However, one hopes that the  investors are better prepared for the increase this time.” 

Ramani Sastri – Chairman & MD, Sterling Developers Pvt. Ltd.

“We have observed a robust comeback in residential sales and launches in the last couple of quarters. From a real estate perspective, this hike in the policy rate comes as a hurdle as home loan rates will increase, putting a dent on the homebuyer’s sentiments. Any increase in the interest rate will further impact the costs of doing business and hence the move will hurt business sentiment too as the economy is still recovering from the pandemic. However there has been a fundamental change in buyers expectations and attitude towards homeownership and this will largely withstand marginal fluctuations in lending rates. It also goes without saying that the real estate industry’s perennial hope is fixed on lower interest rates as it improves affordability. There is still pent-up demand and even after the repo rate hike, affordability is still high and the home buyer needs to take advantage of that in the short term. Going forward, we hope that the government continues to pay attention to the requirements of the sector, which is one of the largest employers in the country. We believe the long-term structural growth story of India is intact and will continue to drive overall demand and consumption for key sectors of the economy.”

Lincoln Bennet Rodrigues, Chairman & Founder, The Bennet and Bernard Company
 
“The current round of hikes could make the buyers apprehensive and they might as well adopt a wait and watch attitude. But on a positive note, the continued wage and job growth in varied sectors will provide a cushion in the short term for the purchasing decisions. The all-time low home loan interest regime in the recent past had boosted the housing demand and also enabled a robust recovery in the real estate sector post the pandemic. Today, people feel the inherent need to make progressive lifestyle changes to lead a more balanced and healthy life. We are hopeful that an improved homebuyer attitude and preference for owning a house will support the housing market and we expect that consumer demand will remain buoyant in the near term. The rate hike won’t have significant impact as home loan interest rates have already gone down substantially in the recent past and buying decisions may not be altered by these marginal changes. The outlook for India Inc looks positive with higher affordability and disposable income in the hands of new-age investors.”

Honeyy Katiyal- Founder, Investors Clinic

The government and RBI need to choose between growth and inflation which always has been a tricky decision. Inflation across the globe has broken all records due to the present Russia-Ukraine war. Hope RBI will use discretion going forward, as inflated rates will hurt the real estate sector the most. We look forward to stabilizing the rate regime now.

Mahendra Jajoo , CIO-Fixed Income Mirae Asset Invetsment Managers India Pvt Ltd

“RBI hiked repo rate by 50bps but no change in CRR was announced. Further suggestion that the yields are being watched closely and that appropriate steps will be taken for a smooth conduct of market borrowing program provided some relief to market which was already factoring in a hike in policy rates. Accordingly, in immediate reaction to policy, benchmark 10Y govt bond yield eased by about 5bps.

Inflation projections for FY 23 are revised upwards to 6.7% while growth projections are  retained at 7.2%. With crude prices around USD 120/bl vs policy assumption of USD 105/bl and the well known cascading impact of it on wider economy, inflation may turn out still higher. Expectation would remain for more rate hikes in forthcoming policies.

Yields at long end of the curve are expected to remain range bound while the short term rates may inch up further in coming months.” 

Ramesh Narasimhan, CEO, Worldline India on the Developmental and Regulatory Policies announced by the RBI:

“RBI’s statement on Developmental and Regulatory Policies has touched upon all critical aspects in online and offline payments space. It is fueling the growth in digital payments across different consumer segments. 

On e-mandates: 
As consumer confidence is growing towards the adoption of digital payments, their preference for convenience is increasing as ever. Today’s announcement to enhance the limit of e-Mandates on Cards for Recurring Payments from Rs. 5000 to Rs 15000 is a welcome move as it will not only benefit consumers to set mandates for multiple categories of payments but also include more players from the insurance, education, and loan sectors. 

On UPI linking to Cards: 
UPI today is by far the most popular payment option for consumers online. In order to further deepen the reach and usage of UPI while keeping consumer preference at the epicenter, the RBI has offered an innovative solution to permit the linking of credit cards on to UPI platform. This will not only encourage consumers to continue making payments via UPI but also provide the benefit of short-term credit that credit cards extend. 

On PIDF: 
Concentration on enhancing the digital payment acceptance infrastructure is crucial for the growth of the ecosystem. Enhancing the subsidy amount and simplifying the subsidy claim process, etc will encourage more players to set up merchant acquiring services like POS and QR and this will eventually accelerate the deployment of payment acceptance infrastructure in the targeted geographies.”

Nitin Bavisi, CFO, Ajmera Realty and Infra India Ltd.

“The RBI today increased the repo rate by 50 bps, the quantum of the rate hike was on the upper end of the market expectations. The central bank has also tweaked its policy stance to withdraw the accommodative policy, ending the easy liquidity policy.

The RBI inflation trajectory above 6.5% is a cause of concern, but the big announcement was raising the limit of loans for the State Co-operative Banks and District Central Co-operative Banks to the housing sector. The housing sector is a capital-intensive business, these measures  will address the growing need for affordable housing, providing easy and higher limits with enough funding avenues for the projects. It will improve credit flow to the sector and also act as a boost for housing projects in the rural areas, thereby ensuring the recovery in all pockets of the country.

While developers expect rationalization of increase in key input cost like steel and cement, coupled with interest rate reversal in home loan from a decade low rates may help the real estate sector to remain in the stable price regime.”

Amit Goenka, MD and CEO at Nisus Finance

RBI action has acted along expected lines in response to global inflationary pressures. The stock markets have already priced in the resultant change in valuations. The real estate market will face some pressures as repo rate linked home loans are likely to increase the EMIs. However, given the resilience shown by the sector, it’s unlikely to have a major impact on sales.

 

Manoj Trivedi, Co-founder, Jama Wealth, SEBI Registered Investment Advisor

Unlike previous policy announcement, RBI has been assertive in prioritizing inflation control over growth, and yet assuring of necessary action based on how the environment dynamics change.

We agree with RBI assessment of India doing relatively better than other Emerging Market Economies and we feel that growth impetus will continue, aided by a normal monsoon and an uptick in exports. The gentle nudge to State Governments to reduce duties needs to be implemented.

The interest rate hike has been on expected lines and has already been discounted by the market. The growth rate estimate being unchanged and the expectation of inflation coming below 6% by end of FY23 should be taken as positives. A positive report card on the Banking sector should augur well for the sector as a whole.

We remain confident of the Indian economy and the markets doing well, but as always, the ride can be bumpy because we can expect further measures to squeeze out liquidity over the next few months. Interest rates will have an upward bias.

Jyoti Prakash Gadia, Managing Director, Resurgent India

Taking into account the persistent inflationary pressures, emerging out of the prolonged geopolitical situation and supply-side constraints, RBI has increased the policy repo rate by 50 basis points on expected lines.

RBI has however tried to perform a big balancing act by continuing to show its inclination to support growth and revival by retaining the GDP growth projections at 7.2% for 2022-23.

While maintaining the overall stance to focus on withdrawal of accommodation, the RBI has not touched CRR at this stage and has indicated its hopes to curb inflation by supply-side actions with expectations of a normal southwest monsoon to ease the food supplies.

The Banking sector is thus expected to do better, while the stock market may show some volatility/correction in the short run.

On the liquidity front, the RBI has promised an orderly completion of the Government borrowing program, which will control the inflationary expectations too.

Additional relaxation announced for cooperative Banks shall further widen and deepen the credit growth and financial inclusion

The overall action by RBI indicates a resolute response to curb inflation while continuing to support the nascent revival, primarily in line with the action by the Central Banks at the global level.

Anil Rego, Founder and fund manager, Right Horizons PMS

Sensex and Nifty opened flat with a positive bias on Wednesday ahead of the Reserve Bank of India’s (RBI) monetary policy outcome. The 30-scrip S&P BSE Sensex rose 50 points to 55,150 and the broader NSE Nifty50 was hovering around the 16,400, up 0.11 percent.

Benchmark indices Sensex and Nifty50 trimmed day’s losses while Nifty Bank index surged after RBI’s repo rate hike announcement. The bond yield also rose.

As the rate hikes are expected, we don’t see any major impact on the market. The turbulence that Indian stock markets have seen over the past few months brings a key positive – from being regarded as far too expensive, valuations are now looking more reasonable as the earnings growth has been strong.

Though we expect continued volatility in the short term on the back of continued rate hikes, we are bullish in the long term on Indian equities on the back of continued consumption due to the favorable demographics of India, lower interest rates, stabilization of reforms in areas like GST, digital infrastructure (UPI, banking, etc.) & its penetration in rural India, the startup ecosystem, and benefits to Indian manufacturing (as MNCs diversify their manufacturing bases from China).

The repo rate hike will impact consumer durables, capital goods, infrastructure, the housing segment, and the banking sector.

Credit growth in the banking sector is picking up and the growth is expected to be broad-based this time however in times where NIMs are under pressure, institutions with strong liability and CASA book are going to be beneficiaries.

Cement companies are under pressure as the recent price hike was very mild however raw material side pressure is not softening.

The real estate sector, which has been seeing a pick-up in sales due to the low cost of financing, could be impacted by the move.

The auto sector, which has been seeing a drag in sales owing to multiple factors such as high fuel prices and an increase in raw material prices, would also feel the burden of the hike in auto loan rates. However raw material cost is expected to come down going forward on account of the cool-off in HRC price post Govt.

Aditya Kushwaha, CEO and Director, Axis Ecorp

The Indian real estate sector staged a spectacular comeback, but the recent repo rate hike by 50 basis points to 4.9 per cent has the potential to thwart the growth. RBI is trying to strike a perfect balance between inflation and repo rates. This hike will push up home loan rates further and make EMIs costlier. The sector is already feeling the heat from the mid-cycle hike announced by RBI in May 2022. The demand has been significantly impacted, and we believe that the current hike will have a far greater impact. The affordable housing segment will be affected the most through this hike, while the luxury and secondary home segments may remain immune.

Mohit Batra, Founder & CEO of MarketsMojo

RBI announced a 50bps rate hike, in line with our estimate. But what has surprised us is that RBI continues to believe the GDP will grow at 7.2 per cent, which we think is an optimistic number. Thus, projected inflation numbers revised upward are in line with our expectations. We expect more rate hikes from the RBI in the coming months. While predicting inflation, RBI has assumed crude at $105 per barrel from its previous estimate of $100 per barrel. Right now, crude is trading at $120 per barrel. Therefore, there is a high probability that the inflation number may get revised upwards in the coming monetary policy.

Sampath Reddy, Chief Investment officer, Bajaj Allianz Life

“RBI hikes key policy repo rate by 50bps to 4.90%, which was along expected lines. The markets were relieved, as there was no CRR hike. However, the RBI did remove the word “Accommodative” from the policy stance and decided to remain focused on withdrawal of accommodation. On the inflation front, the forecast for the FY23 has been raised to 6.7% from 5.7% earlier, due to the elevated commodities prices, which we believe is realistic. On the growth front, GDP growth rate estimates retained at 7.2% for FY23, which is a healthy growth rate in the current backdrop. 

Overall, a significant part of the pandemic led “policy accommodation” has been reversed. Bond yields will track global crude oil prices, monetary policy stance of the major central banks and the inflation trajectory.”

Arun Kumar, Head of Research, FundsIndia

 
“The rate hike of 50 bps was in line with market expectations. With this hike, RBI is closer to bringing the repo rate back to the pre-covid levels of 5.15%. The RBI has clearly acknowledged the inflation risks primarily driven by food and commodity prices and revised its FY23 inflation projection upwards by 100 bps to 6.7% (from 5.7% in the April meeting). The 2% to 6% inflation band is now expected to be breached for three consecutive quarters. Given this context, RBI is expected to front-load its rate hike actions. However, the growth forecast for FY23 remains unchanged at 7.2%. Overall, the focus at the current juncture is clearly on controlling inflation and the government has also joined the RBI in an attempt to contain inflationary pressures in the economy. As bond yields have increased over the last few months (factoring in for a large part of future rate hikes), debt fund yields are becoming more attractive (especially in the 3-5Y duration segments).”

Sharad Mittal, Director and CEO, Motilal Oswal Real Estate Funds

“Decadal low mortgage rates coupled with other govt driven incentives and increased value of homeownership during the pandemic provided much needed stability and momentum to the real estate sector. The robust uptake in the demand has continued despite recent inflationary pressures on commodity prices and adverse supply chain constraints.

RBI in its last two MPC meetings has hiked interest rates in order to keep the rising inflation under check. Now with mortgage loan rates set to go up, we may notice a slight demand blip in the short term but overall outlook on the sector remains strongly bullish in the long term.

In an interesting move, RBI has now allowed rural co-operative banks to lend towards residential housing projects. This will help improve much-needed liquidity in the sector.”

Nikhil Gupta, Chief Economist, MOFSL group.

RBI hikes policy rates by 50bps, keeps CRR unchanged

— The RBI hikes the repo/SDF rate to 4.9%/4.65% today. This is higher than our forecast of 4.75/4.5% and the market consensus was for a hike of 40-50bps. The decision was taken unanimously by all MPC members.

— Interestingly, while the RBI increases its FY23 inflation forecast to 6.7%, GDP growth projection is kept unchanged at 7.2%. We wonder that if higher interest rates don’t hurt growth, how will it help bring down inflation? It also suggests that most of the excess inflation is due to global/supply-side factors.

— The Governor mentions that even after today’s hikes, the policy rate is below the pre-pandemic levels (of 5.15%/4.9%).

— Since the RBI continues to forecast strong growth, it is very likely that it delivers another 25bps hike on 4th of August before it takes a pause. Our fear is that growth could see a serious deceleration in H2FY23 and FY24 on the back of such steep tightening and structural constraints.

Nish Bhatt, Founder & CEO, Millwood Kane International

“ The RBI has yet again hiked rates, this was the second hike in two consecutive months – rarely has the central bank been so aggressive on rates. While the quantum of hike in repo rate was on the upper end of the market expectation. The RBI moving its focus to the withdrawal of accommodative policy signals the end of easy monetary policy.

The RBI estimate of inflation above the 6% mark for FY23 will not pinch much provided the growth rate is high to square that off. The hike in limit for loans for state and rural co-operative banks for residential and commercial real estate is yet another step to boost funding avenues for the real estate sector. It will ensure liquidity and funding for the sector, thereby boosting demand in the rural pockets of the country.”

Shiv Parekh, Founder hBits 

“With the highest inflation in almost over a decade, the rate hike was eminent. However, the hike in rates will impact the residential housing sector, as it will influence  the purchase price immediately for buyers. There will be an overall impact on capital intensive industries and this high rate regime will witness an overrun in projects cost.”

Sonam Srivastava, Founder at Wright Research, SEBI Registered Investment Advisor

The governor stressed the pressures being faced by the economy due to the war and the inflationary pressures. He talked about the grave global scenario and listed the robust condition of the local economy by listing the improvement in demand, fundamentals, credit, and reopening indicators but came out with a stance of stepping away from accommodation and raising the repo rates by more than expected 50 bps.  

The RBI finally raised the inflation expectations to 6.7%, near the street expectation, and did not cut the growth expectations. This announcement gives us a lot of confidence and reassurance that the RBI is not falling behind the curve and is more proactive than not in its efforts to curb inflation and stabilize the Indian economy during global turmoil. The additional reforms announced for the cooperative banking and payment system would also have a positive impact.

The markets turned positive, and the 10-year bond yields went down and even turned negative following the announcements. This announcement shows us that the RBI has reassured the market that we will be prepared during the global turmoil and will not let the inflation situation escalate. 
The governor stressed the strength of the banking sector which is more robust than ever before in terms of credit quality. Moreover, banks are taking the announcements well, and we could well see the momentum come back in the sector following these announcements.

Divam Sharma, Founder at Green Portfolio, SEBI Registered Portfolio Management Service Provider

The hike is on the higher side of the expectation window of 25-50bps. This, along with the 40bps hike is an aggressive change in stance from accommodative to targeting inflation.

CPI inflation is at 7.8% currently and is further expected to face headwinds from potential continuity in elevated crude prices, dollar appreciation, revision in electricity prices, and particularly rise in the food group which contributed to the 75% of inflation.

With deepening stress in the rural markets, we are already witnessing certain sectors like FMCG, automobile, and white goods facing margin pressure and a fall in demand volumes. Targeting inflation for the reduction in household budgets of the broader population is a welcome step.
There could be some more quarters of pain from continuing global hyperinflation.

The BFSI sector could continue to face headwinds from rising uncertainties on economy and RBI action. The sector has already witnessed significant FPI outflows of late.

The rate hike was factored in the expectations by the markets. High leveraged balance sheet companies and stocks with high valuation multiples could face volatility and eventual correction going forward.

Further impact could be seen in companies where eventual rise in interest rates from banks can impact the volumes, i.e. automobile, white goods, real estate.

Madhavi Arora, Lead Economist, Emkay Global Financial Services:

“The 50bp rate hike in policy repo rate is in line with our expectations of RBI remaining front-loaded on rate hikes, after un-anchoring markets’ policy expectation in Apr/May. 

The stance continues to be focussed on withdrawal of accommodation. The triple whammy of commodity-price shocks, supply-chain shocks and resilient growth, has shifted the reaction function in favor of inflation containment. The reaction function is now evolving with fluid macro realities. The inflation prints of next two quarters are likely to exceed 7%, which could pressure the RBI into acting sooner rather than later.

FY23 could thus further see rates going up by 75 bps+, with the RBI now showing its intent to keep real rates neutral or above to quickly reach pre-Covid levels. 

Our Taylor’s estimate shows a max tightening of policy rate by 6% by FY23, of which liquidity tightening to 2% of NDTL is tantamount to another estimated 25bps of effective rate hike. 

However, the front-loaded rate-hiking cycle does not imply a lengthy tightening cycle, and once they reach the supposed neutral pre-Covid monetary conditions, the bar for further tightening incrementally may be higher amid increasing growth-inflation trade-offs.”

Shishir Baijal, Chairman & Managing Director, Knight Frank India

“A repo rate hike of 50 bps was imminent given the current inflationary trajectory and geopolitical concerns. Although the government has taken various measures to control domestic inflation such as food export restriction and cut in excise duty, prolonged war and spike in global crude oil price is still worrisome. 

From a real estate perspective, home loans are set to get costlier. Banks have already raised the interest rate on home loan by 30-40bps since the earlier repo rate hike by the RBI in May and now with the repo rate cumulatively higher by 90 basis point there will be further increase in interest rate for homebuyers. Rising interest rate along with elevated property construction cost and product price pressures could adversely impact on the real estate buyer’s sentiment. We hope that economic recovery and household income growth will serve as a cushion for sustaining consumer demand in the face of this rate hike. Further, monetary policy tightening by central banks globally and any resolution on the prolonged Russia – Ukraine war will bring price stability”.

Nitin Shanbhag, Head of Investment Products, Motilal Oswal Private Wealth.

“The 50 bps repo rate hike was already factored in with 1 year G-sec yield already trading at 6% pre policy. The yield curve is quite steep and is likely to continue to flatten going forward. The prevailing term spread between the 10 year and 5 year yield is not attractive relative to historical spreads. Hence, for Fixed Income portfolios, we suggest core allocation to the 4-5 year maturity segment in high credit quality, target maturity debt funds which invest in a combination of G-sec, SDL, and AAA-rated instruments.”

Dr. Ravi Singh, vice President and head of Research, Share india 

In line with the expectation, RBI has increased the repo rate by 50 basis points and is already discounted by the market. The Ukraine Russia war has led to an increase in inflation globally beyond tolerance level and is effecting the economic growth. However, most of the industries are already facing headwinds due to steep increase in raw materials cost and fuel prices, and a hike in the rates will further increase the burden. The Fed is also increasing the rate so there is major possibility that apart from equity market, other markets like debt market and bond market may see some outflow anytime soon. 

Auto, Real estate, Banking and infrastructure stocks would be worst hit by the rate hike as loan financing is a major part of these sectors. FMCG, Insurance, Energy, Power and Utility sectors provides a cushion against rising interest rates

Atul Goel, MD, Goel Ganga Group 

RBI’s recent step to increase the repo rate by 50 basis points has been on the expected lines. To curb inflation, the regulatory bodies in India were required to control liquidity circulation in the economy. For a few months, the inflation rate has been above 6%, which is beyond the RBI’s safe zone. If not controlled, the inflationary pressure could destabilize an otherwise bullish Indian economy. Although the recent step will increase the home loan rates, an unstable economy is not conducive to the overall health of the real estate industry. For the industry to operate optimally, it is important that the economy continues to grow in a stable, inclusive, and steady fashion.

Manoj Dalmia, founder and director Proficient equities Private limited 

RBI has raised the repo rate by 40bps  to 4.9% , the inflation projection for this fiscal is 6.7% and will remain above the tolerance band of 2-6%  for three quarters in this fiscal, RBI is still expects the economy to grow at a rate of 7.2% .
The SDF and MSF have been increased to 4.65% and 5.15% respectively, RBI is expected to reduce liquidity, reinforcing its fight against inflation and extending its effort to return monetary conditions.
The cost of lending for banks is set to go up due to an increase in repo rate ,retail loans will face direct impact due to this

Suren Goyal, Partner, RPS Group 

We welcome the step of the apex body to increase the overall repo rates by another 50 basis points. This will help in clamping down inflation and smoothen economic growth. A rise in inflation can soften the stance on an otherwise robust real estate industry. Already raw material prices are increasing and an unbridled rate of inflation will further drive the input costs northwards, therefore resulting in cost overruns for the developer fraternity. In such a case they will have no option but to pass on the price to the homebuyers. Meanwhile, the government should also take concentrated efforts to reduce the spike in prices of raw materials such as cement, bricks, steel, etc. This will also give some relief to the sector.

Ravi Singhal, Vice Chairman, GCL securities Limited 

Inflation target increased from 5.7 percent to 6.7 percent, exceeding the RBI’s target of 4 percent; repo rate increased by.50 basis point; and CRR remains positive for banking. The inflation target is for fiscal year 23.

Ridhima kansal, Director, Rosemoore 

basis points. This is the second consecutive rate hike after the bank increased lending rates by 40 bps last month.  This is a move that has come as a no-brainer since the bank has attributed the current scenario to tensions between Russia & Ukraine along with currency depreciation & high supply shock. 
 
The escalation in rates has definitely prompted retail borrowers to adopt a bearish outlook when it comes to borrowings as the cost of taking out loans is now noticeably higher. However, looking at consistent pace of improved urban demand, there is still optimism as far as uptake in commodities such as home fragrances which are predominantly emerging as a popular product among buyers.

Ramani Sastri – Chairman & MD, Sterling Developers Pvt. Ltd

We have observed a robust comeback in residential sales and launches in the last couple of quarters. From a real estate perspective, this hike in the policy rate comes as a hurdle as home loan rates will increase, putting a dent on the homebuyer’s sentiments. Any increase in the interest rate will further impact the costs of doing business and hence the move will hurt business sentiment too as the economy is still recovering from the pandemic. However there has been a fundamental change in buyers expectations and attitude towards homeownership and this will largely withstand marginal fluctuations in lending rates. It also goes without saying that the real estate industry’s perennial hope is fixed on lower interest rates as it improves affordability. There is still pent-up demand and even after the repo rate hike, affordability is still high and the home buyer needs to take advantage of that in the short term. Going forward, we hope that the government continues to pay attention to the requirements of the sector, which is one of the largest employers in the country. We believe the long-term structural growth story of India is intact and will continue to drive overall demand and consumption for key sectors of the economy.

Lincoln Bennet Rodrigues, Chairman & Founder, The Bennet and Bernard Company

The current round of hikes could make the buyers apprehensive and they might as well adopt a wait and watch attitude. But on a positive note, the continued wage and job growth in varied sectors will provide a cushion in the short term for the purchasing decisions. The all-time low home loan interest regime in the recent past had boosted the housing demand and also enabled a robust recovery in the real estate sector post the pandemic. Today, people feel the inherent need to make progressive lifestyle changes to lead a more balanced and healthy life. We are hopeful that an improved homebuyer attitude and preference for owning a house will support the housing market and we expect that consumer demand will remain buoyant in the near term. The rate hike won’t have significant impact as home loan interest rates have already gone down substantially in the recent past and buying decisions may not be altered by these marginal changes. The outlook for India Inc looks positive with higher affordability and disposable income in the hands of new-age investors. 

Dr M Sharma, Chief Economist, Infomerics

“In view of the evolving growth-inflation dynamics, the MPC took the right call of hiking the Policy rate by a hefty 50 bps on top of the unscheduled off-policy cycle hike effected in May 2022. This strong measure will certainly help to control persistent inflation to some extent, but it may hurt fragile growth impulses.

The move to expand the lending scope of cooperative banks, which have a legacy and nationwide presence, is highly welcomed. This will not only help state and rural banks in boosting their loan book / enhance their working, but also give a thrust to affordable housing for all, as outlined by Hon’ble PM time and again. Contextually significant”

Ram Raheja, Director at S Raheja Realty:

“The decision to increase the repo rate by RBI is in line with the industry expectation. Bank rate also spiked to 5.15% from 4.65% and limits on individual home loans given by urban and rural co-operative banks have been revised upwards more than 100 percent considering the rise in housing prices over the last decade. As the inflation is expected to remain above RBI upper range tolerance level of 6% till Dec this year; it will certainly have some repercussions on housing uptake. The RBI is focused on controlling the escalation of inflation in the country but must simultaneously be careful to not hurt the growth of the real estate market.”

DRE. Reddy, CEO and Managing Partner at CRCL LLP

The RBI today hiked the repo rate by 50 bps, with a focus on the withdrawal of the accommodative policy. The stage is set for a return of policy measures back to pre-COVID levels with an end of the easy money era. 

The RBI estimating the inflation levels to remain above the 6% level for FY23 is a cause of concern. The recovery in rural demand is key to a growth rate above 7% for FY23. A normal monsoon, good crop year, and de-escalation of tension between Russia and Ukraine will help keep crude prices in check.

Sandeep Bagla, CEO, Trust Mutual Fund

“Markets expect regulators to have better information and hence act proactively in order to maintain macro stability and equilibrium. Regulators need to prioritize their target variable between growth and inflation. In India, we have raging inflation at 7.8%, higher capacity utilization, and growing consumer confidence, and yet the policy rate has been hiked to 4.90% only, which is lower than pre-pandemic levels. The ideal effective overnight rate should be closer to 6%, but at this pace, it might take us 3-4 policies more to reach there. Monetary policies tend to work with significant lags on the real economy. The longer we wait in raising rates adequately, the more we are letting the underlying inflationary fires simmer. Don’t expect inflationary expectations to come down and most likely the 10-year G-sec yield would trade between 8.25-8.50 in the next couple of quarters”

Rajiv Shastri, Director, and CEO, NJ AMC

“The MPC’s actions are in line with the minutes of their previous meeting and indications thereafter. Higher rates are expected to moderate consumer demand, which may prevent higher producer prices from being passed on to customers going forward. However, this may squeeze corporate profits in the immediate term as they grapple with higher input prices and low demand from their consumers. Fiscal initiatives by the government may be needed to compensate for lower private consumption and sustain GDP growth at expected levels, which may result in higher government borrowings in the near term. However, there are some indications that global prices may moderate soon which may allow for a pause sooner rather than later.”

George Alexander Muthoot, MD, Muthoot Finance 

“In the light of the uncertainty of persisting geopolitical tensions, concerns over rising global inflation and escalation in global crude oil prices and other commodities, we had expected the RBI to hike interest rates in consonance with the recent off-cycle policy meeting. The RBI has further hiked the repo rate by 50bps to 4.9% and will be focused on ‘withdrawal of accommodation’ to ensure inflation remains within target going forward while supporting growth. RBI further retained its FY23 GDP forecast at 7.2% on the back of recovery in urban demand and improving rural demand conditions along with expectations of normal monsoon. The push from the government on capex and increase in capacity utilization is likely to bolster well domestic economic activity. The RBI has also reiterated that they will ensure adequate liquidity in the banking system for productive purposes of the economy. We are optimistic that with pick up in both urban and rural demand, there will be a pick-up in demand for gold loans in the industry in the upcoming quarters.”

Umesh Revankar, Vice Chairman & MD, Shriram Transport Finance

“The RBI, largely on expected lines, hiked the repo rate by 50 bps with the MPC focussing on ‘withdrawal of accommodation’ to ensure inflation remains around the medium-term inflation target, while supporting growth. As the inflationary expectations have been rising, the RBI hiked the FY23 inflation forecast to 6.7%, but retained the FY23 GDP forecast at 7.2%. 
 
The rise in inflation is largely attributable to global crude oil prices and the geo-political environment. The RBI has been taking measures to tame excess system liquidity while the Government is managing inflation by reducing tax on petroleum products and restricting exports of essential commodities. We believe the regulator may not hikes rates very aggressively hereon, and will continue to monitor the evolving growth-inflation dynamics. While surplus system liquidity has come down, the RBI has said they will ensure adequate system liquidity for productive purposes. As a result, we do expect borrowing cost to go up gradually. It was heartening to see that RBI expects a pick-up in investment activity and an improvement in both urban and rural demand conditions. There continue to be some challenges, but we do expect to see a pick- up in new vehicle sales as investment activity and government capex spend  in the economy while used vehicle demand continue to be robust.”

Indranil Pan – Chief Economist, YES BANK 

“The RBI remains aggressive with its inflation forecast and has possibly built in the worst scenario on inflation expectations for the moment. We still believe that the front loading strategy will continue and thus pencil in another 40 to 50 basis points increase in the repo rate in August policy. Thereafter the RBI may have to be more linient in the extent of increases, keeping in line with its current inflation trajectory which also points to a sub-6% number in the fourth quarter. By December the RBI should have raised the policy rate to 5.80-6% and pause thereafter to assess the implications of the cumulative 180-200 basis points increase on both growth and inflation.”

Pranjal Kamra, CEO, Finology Ventures

“The war-induced supply crunch, soaring inflation and rupee depreciation have resulted in fighting times for the economy. To state the gravity of the matter, CPI was at an eight-year-high of 7.79% in April and is predicted to be around or above the upper limit of 6% this year too. In a bid to curb inflation, the RBI has hiked the repo rate today by 50 basis points to 4.9%. This rate-hike trend is expected to continue for a few months from now. The central bank is also getting a helping hand from the government’s recent measures. On the contrary, there has been a sliding y-o-y growth in private consumption expenditure which indicates that economic activity remains slow. That’s where the RBI has to strike a perfect balance between inflation & growth. Apart from the rate hike, encouraging moves have been taken to promote digitization like linking of credit cards with UPI & increase in e-mandate limits. All these measures including banking tweaks to promote affordable housing seem to be unorthodox and practical, with the RBI playing its central bank role almost perfectly.”

Vinit Dungarwal, Director, AMs Project Consultants Pvt. Ltd.

“The RBI’s decision to hike the repo rate by 50 bps to 4.9% is a bold move. From a real estate perspective, this move will impact the residential properties and slow down the sales momentum. The continuous hike in the repo rate is like a triple whammy for the developers. They are already grappling with the increased raw materials prices and supply chain constraints. The costlier lending rates will add to their worries. We hope that these rates will be eased out once the global condition improves. Today RBI also announced the hike in the limit of individual loans by co-operative banks by 100 per cent. This is a welcome move and will benefit the homebuyers who opt for home loans from co-op banks.”

 Ankit Mehra , CEO and Co-founder, GyanDhan

“There was a general consensus that there will be a repo rate hike given the inflationary concerns. We expect that by the end of the year there will be 2-3 more hikes with the total quantum of hike being close to 1% over the 0.9% hike done in the last couple of months. Lenders including SBI had already increased the benchmark rates post the last rate hike, and we expect another set of rate adjustments in the next month. The market for higher education, particularly overseas education, remains buoyant and we don’t expect the rate hikes to materially impact the demand for loans. 0-interest EMI products will similarly see limited impact as long as the training institute is able to adjust the increased costs from their margins. We also do not expect any significant increase in default risks for the existing borrowers, as the impact on the overall EMI burden is fairly miniscule.”

Asutosh Mishra, Head Of Research, Institutional Equity, Ashika Group

“RBI continued to accelerate the pace of tightening with 50bps hike v/s 40 bps hike in the last mid cycle policy announcement. Hike in the benchmark rate is at the upper end of the market estimates and clearly indicates that urgency at the RBI end to contain the inflation with little focus on the impact of same on the growth.

This is also being reflected in the RBI’s inflation and GDP projection as RBI increase the inflation projection for FY23 by 100bps to 6.7% v/s keeping the GDP growth projection at 7.2%.”

Vivek Bansal – Group CFO, InCred

“No surprise is the best thing out of the policy and the increase in Repo Rate is on expected lines. The policy also reflects on inflation expectations and there are factors on both sides which will play out over the next couple of months which will be very important on how the next policy action happens. It is also heartening to see that MPC has not left growth factors completely out of consideration and if inflation cools, growth may again take precedence. On balance it looks like there could be one more 50bps hike in next 3-4 months and then a extended pause which will be good for overall growth inflation dynamics. Besides policy rates there are some important announcements on payments and settlements with respect to enhancement of limits for recurring payments and most importantly UPI linkage to Rupay cards. RBI has signaled increasing usage of UPI by adding credit cards as well which hopefully will further increase UPI penetration and digital payments overall.”

Yash Gupta- Equity Research Analyst, Angel One Ltd

“As expected, the repo rate hiked by 50 bps to 4.90%. After the commentary of the RBI governor last month, the market has already expected a rate hike of 50bps in the June meeting. So now the RBI has taken a decision on the rate hike of 50bps. We believe that this rate hike is already priced in the market. Along with this bank rates have also increased by 50bps to 5.15% and withdrawal of accommodative stance for the indian economy.
A Good take away for the market is that RBI has retained the GDP forecast of 7.2%  for FY2023 and CPI inflation expected to be at 6.7% for FY2023. Overall the policy is in the expectation of the market, 50bps rate hike is already priced in the market now the market focus will be on the Fed rate hike.”

Pramod Kathuria, Founder & CEO, Easiloan

The RBI has increased the repo rate by 50 basis points. This is the second consecutive increase in this financial year. The policy rate as on June 2022 stands at 4.90 per cent. Since banks borrow funds from the RBi at the repo rate, the cost of funds goes up when the repo rate is increased. Hence, banks end up passing the interest rise to the borrowers, whose monthly installments get costlier. After the previous repo rate rise in May by 40 basis points due to the pressure to maintain liquidity in the market, many banks increased their lending rates. These policy changes are unlikely to decrease the housing momentum, but can have impacts in the shorter term.

Vikas Garg – Co-founder & CEO, Paytail

“As the inflation rate skyrockets on a day-to-day basis, RBIs rate hike of 50bps came in line with the current scenario of the market. The primary reason why the repo rate has been hiked for 2nd time in a row by the RBI in a bid to control and manage the soaring inflation. The hike is also suggestive of the fact that the increasing inflation is due to global supply side factors as the RBI’s growth projection remains intact at 7.2%. This moves also comes as a bit of a hurdle for MSME’s who were recovering from the uncertainty of the past 2 years of the global pandemic and will significantly impact their achievability of large projects, infrastructure as well as the cost of funds. However, we can witness a correction in the price of raw materials which can supplement the overall growth of the economy.If the market performs the same, we might see another hike in the next monetary policy to control the ever-increasing inflation.”