RBI hikes repo rate again: Here’s what it means for your investments

While retaining the GDP growth forecast at 7.2 per cent, the Reserve Bank of India (RBI) on Friday hiked the repo rate by 50 basis points which stood in line with the global trends of monetary policy tightening to cool off inflation. The apex bank has so far raised the repo rate by 140 basis points since embarking on a tightening cycle at an unscheduled policy meeting in May this year. The MPC’s rate hike is intended at curbing demand, and, thereby, control high inflation. The benchmark equity index BSE Sensex traded 217 points, or 0.37 per cent, up at 58,516 in the morning trade at around 11.50 am (IST).

Will the RBI go for another rate hike and how will the rate hike impact investments, real estate and bond markets going ahead? Here’s what experts have to say:

KEDAR KADAM, DIRECTOR-LISTED INVESTMENTS, WATERFIELD ADVISORS

We do not expect banks to pass on the current hike in interest rates, as they have already raised the lending rates, further hikes in lending rates could impact the gradual recovery seen in the economy in the post-pandemic period.

VK VIJAYAKUMAR, CHIEF INVESTMENT STRATEGIST, GEOJIT FINANCIAL SERVICES

The 50 basis point repo rate hike came 15 basis points higher than the majority expectation of a 35 basis points hike. It is evident that the MPC is frontloading the rate hikes since it feels that “CPI inflation is above comfort levels”. The MPC has been emboldened to go for this 50 basis points hike since “the economic activity is resilient” and “withdrawal of accommodation stance is necessary to anchor inflation expectations”. The RBI governor went so far as to say that “the Indian economy is holding steady in an ocean of turbulence”. The capacity utilisation in the industry at 75 per cent is higher than the long-term average. The stock market has well received a positive view of the economy in spite of the higher-than-expected repo rate hike.

PRITAM CHIVUKULA - CO-FOUNDER & DIRECTOR, TRIDHAATU REALTY AND TREASURER, CREDAI MCHI

The sharp acceleration of rates consecutively for the third time in a short period may have a short-term effect on the sentiment of homebuyers as low-interest rates have been the biggest factor in the resurgence of real estate demand in the last two years. We hope that the state government will step in to lighten the homebuyer’s load by reducing stamp duty ahead of the festive season.

KAUSHAL AGARWAL-CHAIRMAN, THE GUARDIANS REAL ESTATE ADVISORY

The rise in property prices due to the increased interest rates, metro cess and higher stamp duty had not affected real estate sales over the last few months, thereby confirming that there is genuine demand for housing. But this move by the RBI to hike the repo rate again might temporarily limit the growth momentum of the real estate sector.

AURODEEP NANDI, INDIA ECONOMIST AND VICE PRESIDENT, NOMURA

The RBI’s 50 basis points hike was largely in-line with market expectations, which were divided between it and a 35 basis points hike. Very importantly, with the RBI retaining the policy stance of “withdrawal of accommodation”, the implicit message is that rates are yet to reach neutral territory and that more rate hikes are warranted – a view that we agree with. The RBI continues to signal that all options are on the table which is a prudent strategy given the elevated levels of uncertainties on both, growth as well as inflation.

CHURCHIL BHATT, EXECUTIVE VICE PRESIDENT, DEBT INVESTMENTS, KOTAK MAHINDRA LIFE INSURANCE COMPANY

Despite the recent moderation in global commodity prices, MPC has retained its FY23 inflation projection at 6.7 per cent. Expressing confidence in India’s macro stability, the governor alleviated fears around rupee volatility. Going forward, the MPC assured markets of its ability to deliver a soft landing for the economy, while keeping inflationary pressures at bay. Given the global recessionary backdrop and its accompanying disinflationary impact, we believe policy rates in India will peak a tad below 6 per cent in this calendar year. In light of the same, further rate actions will be more calibrated and data-dependent. The yield on benchmark 10-year government bonds is expected to remain in the 7.10-7.40 band in the near term.

MOTILAL OSWAL, MD AND CEO, MOTILAL OSWAL FINANCIAL SERVICES

The commodity prices have cooled off including crude oil and the inflation may be peaking out. We expect RBI may not be very aggressive in its subsequent policy meets and be more data-driven based on inflation numbers.

LAKSHMI IYER, CHIEF INVESTMENT OFFICER (DEBT) AND HEAD PRODUCTS, KOTAK MAHINDRA ASSET MANAGEMENT COMPANY

We are not done with the rate hiking cycle yet and we could brace for a continued northward journey in rates. Withdrawal of accommodative stance has been maintained. We see this as a “no dovish” undertone policy contrary to markets expecting a dovish stance. Bond markets would now focus on incremental G-Sec supply and take cues from global bond yields going forward. Staggered investment approach in fixed income stays.

NAVEEN KULKARNI, CHIEF INVESTMENT OFFICER, AXIS SECURITIES

Repo rates reverted to pre-pandemic levels, the highest since August 2019. The MPC maintained its stance on calibrated withdrawal of accommodation while supporting growth. We have seen system liquidity tighten since RBI started withdrawing excess liquidity, and system credit growth improved to 14 per cent. With credit growth looking up, we believe the banks with a higher share of floating rates and a robust CASA-led deposit franchise should be placed well in this increasing interest rate environment. While the domestic inflationary pressures seem to be easing out gradually, the geopolitical tensions, volatility in global financial markets, and emerging risk of the global recession continue to remain key risks.

Also read: Higher EMI, longer tenure: RBI repo rate hike means home loan pain for borrowers