RBI's rate hike on expected lines: Experts

Mumbai: The Reserve Bank's decision to raise the benchmark lending rate by 35 basis points is on expected lines and indicative of softening of intensity of rate hikes going forward, opined industry bodies and experts on Wednesday.

After effecting three consecutive repo rate increases of 50 basis point (bps) each over and above 40 bps in May, the RBI on Wednesday slowed the pace of increase in borrowing costs in signs that rates may be nearing the peak, even as it reiterated its resolve to fight inflation that has stayed above the comfort zone for 10 straight months.

FICCI President Sanjiv Mehta said the RBI's policy action hiking the repo rate by 35 bps was widely anticipated as the war against inflation is still far from over. "While the CPI inflation projection has been maintained at 6.7 per cent for 2022-23 and some early signs of inflation cooling down on a sequential basis are coming to fore, we need to see this trend emerge on a durable basis for RBI to indicate a change in stance," he said.

Industry body Assocham too said the 35 bps increase in the policy rate by RBI is on the expected lines, though there is a signal that the rate hike intensity "is being softened". "Despite the challenges in the global economy and uncertainties with regard energy prices, supply chain and geo-political situation, India remains amongst the fastest growing economies of the world, as elaborated by RBI Governor Shaktikanta Das," said chamber Secretary General Deepak Sood.

The Reserve Bank on Wednesday also lowered the country's GDP growth forecast to 6.8 per cent for the current fiscal from 7 per cent earlier, on account of continued geo-political tensions and tightening of global financial conditions. India, however, remains a bright spot in the otherwise gloomy world and will be among the fastest growing major economies, said RBI Governor Das. Another industry body PHD Chamber said as inflation is cooling, a calibrated approach to maintain economic growth would be vital to attract investments.

"Efforts to rejuvenate demand and producers sentiments for enhanced production would be crucial at this junture," said PHD Chamber President Saket Dalmia. The latest round of hike in repo rate will further impact consumer as loans would become costlier. "Take a look at how this will impact a borrower who has taken a loan of Rs 30 lakh on a 20-year period at 8.50 per cent. Currently, they would be paying Rs 26,035 as EMI. But if we factor in the 0.35 per cent increase due to repo, the new interest rate would jump to 8.85 per cent, making the EMI amount Rs 26,703," said V Swaminathan, Executive Chairman of Andromeda loans.

This implies the borrower incurs an additional Rs 668 monthly for the same home loan repayment and they would have to shell out Rs 1.60 lakh over the entire duration of the loan amount, he added. Prashant Utreja, CEO, Reliance Home Finance, said the repo rate hike is likely to lead to a marginal increase in lending rates which may not prove deterrence for the real estate industry in the short term.

"Presently, the sentiment around the real estate sector is positive which is supported by strong demand amid expectations of a price rise in the coming days. Since the pace of repo rate increase has been moderated, lenders would assess the market sentiment before passing on the rate hike to consumers," said Utreja.

Anand B, Assistant Professor, Narsee Monjee Institute of Management Studies (NMIMS), opined that although the growth rate forecast for 2022-23 stands corrected at 6.8 per cent (despite a series of rate hikes), it provides sufficient space for the central bank to continue its efforts to anchor inflation as well as inflation expectations. Sandeep Bagla, CEO, Trust Mutual Fund, said the RBI's focus on inflation control should eventually soothe bond markets as lower inflation in the medium term is good for bond holders. Also, markets should also take relief from the tumbling crude oil prices in the international markets. RBI also announced that an additional feature would be added in the popular UPI platform to aid payments where delivery of goods and services happens later, like e-commerce purchases, hotel bookings or investments in securities.

Commenting on the new feature, Jasmin B Gupta, Co-founder and CEO of LXME, said the customer will be able to block funds in his/her bank account for specific purposes such as hotel bookings, purchase of securities, that will be debited post service/product delivery. The value-added feature will enable trust-building in the person-to-merchant and merchant-to-merchant transactions, Gupta added. On RBI's decision regarding expansion in the scope of Bharat Bill Payment System to include all payments and collections, Manan Dixit, founder FidyPay, said BBPS will become one step of solutions for utilities kind of billers or any monthly payment a consumers does regularly.