RBI’s policy on expected lines indicates that the intensity of the rate hike is being softened: experts

Bombay:

The Reserve Bank’s decision to raise benchmark lending rates by 35 basis points is in line with expectations and points to a softening of the intensity of future rate hikes, industry associations and experts said on Wednesday.

After three consecutive increases in the repo rate by 50 basis points (bps) each and above 40 basis points in May, the RBI slowed the pace of borrowing cost increases on Wednesday as signs interest rates could be approaching the peak, even as it reiterated are determined to fight inflation that has remained above the comfort zone for 10 consecutive months.

FICCI President Sanjiv Mehta said the policy move by the RBI to raise the repo rate by 35 basis points was widely expected as the war on inflation is far from over.

“While the CPI inflation projection for 2022-2023 has been maintained at 6.7 percent and some early signs of inflation on a sequential basis are emerging, we need to see this trend sustainably before RBI can provide any indication of a change of stance” , he said.

Industry association Assocham also said that the RBI’s 35 basis point hike in key rates is in line with expectations, although there is a signal that the intensity of the rate hike is “weakening”.

“Despite the challenges in the global economy and uncertainties related to energy prices, supply chain and geopolitical situation, India remains one of the fastest growing economies in the world as elaborated by RBI Governor Shaktikanta Das,” said Chamber Secretary-General Deepak Sood.

The Reserve Bank on Wednesday also cut its forecast for the country’s GDP growth to 6.8 percent for the current fiscal year from 7 percent earlier amid ongoing geopolitical tensions and tightening global financial conditions.

However, India remains a bright spot in an otherwise gloomy world and will be one of the fastest growing major economies, RBI Governor Das said.

Another industry association, PHD Chamber, said that as inflation cools, a calibrated approach to maintaining economic growth would be vital to attract investment.

“Efforts to rejuvenate demand and producer sentiment for improved production would be critical at this time,” said PHD Chamber President Saket Dalmia.

The latest round of repo rate hikes will have a further impact on consumers as loans would become more expensive.

“See how this will affect a borrower who has taken a loan of Rs 30 lakh over a period of 20 years at 8.50 per cent. Currently they would pay Rs 26,035 as EMI. But if we take into account the 0.35 per cent increase due to repo, the new interest rate would rise to 8.85 per cent, making the EMI amount Rs 26,703,” said V Swaminathan, executive chairman of Andromeda loans.

This means that the borrower would have to pay an additional Rs 668 monthly for the same home loan installment and would have to pay Rs 1.60 lakh over the entire term of the loan amount, he added.

Prashant Utreja, CEO of Reliance Home Finance, said the increase in repo rates is likely to lead to a marginal increase in lending rates, which may not be a deterrent to the real estate sector in the near term.

“Currently, sentiment around the real estate sector is positive, supported by strong demand amid expectations of a price hike in the coming days. As the pace of repo rate rise has moderated, lenders would assess market sentiment before committing to the interest rate increase for consumers,” Utreja said.

Anand B, assistant professor, Narsee Monjee Institute of Management Studies (NMIMS), believed that while the growth forecast for 2022-2023 is corrected at 6.8 percent (despite a series of interest rate hikes), it provides ample room for the central bank continue its efforts to anchor both inflation and inflation expectations.

Sandeep Bagla, CEO of Trust Mutual Fund, said the RBI’s focus on inflation control should ultimately calm bond markets, as lower inflation is good for bondholders in the medium term. Markets should also take relief from declining crude oil prices in international markets.

RBI also announced that an additional feature would be added to the popular UPI platform to facilitate payments where the delivery of goods and services is delayed, such as e-commerce purchases, hotel bookings or securities investments.

Commenting on the new feature, Jasmin B Gupta, co-founder and CEO of LXME, said that the customer can block money in his/her bank account for specific purposes, such as hotel bookings, purchase of securities, which will be charged after delivery of services/ Products.

The value-added feature will enable building trust in person-to-merchant and merchant-to-merchant transactions, Gupta added.

On RBI’s decision regarding expanding the scope of Bharat Bill Payment System to include all payments and collections, Manan Dixit, Founder FidyPay said that BBPS will become a step of solutions for utilities such as billers or any monthly payment that a consumer regularly does.

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