India Inc seeks pause in interest rate hike
3-day meet of monetary policy committee (MPC) on rate hike begins today; Industry feels that rate hike impact will be compounded in the current environment
Mumbai:The stakeholders from various sectors have raised demand for pause on rate hike from the monetary policy committee (MPC), which starts its three-day meeting to take a call on rate hike on Monday.
Talking to Bizz Buzz, Churchil Bhatt, executive vice-president & debt fund manager, Kotak Mahindra Life Insurance Company, says: “It will be a catch-22 situation for the policy maker that will base its verdict on - ‘a turbulent global economic landscape’ versus ‘a healthy, reasonably well-insulated domestic economy.”
“We expect a pause in April 23 MPC meeting with no change in stance. Forward guidance by the MPC, if any, may be open-ended, leaving room for deft manoeuvrability depending on evolving circumstances in the global and domestic economy,” he said.
Pradeep Aggarwal, founder & Chairman, Signature Global, said: “Over the past three quarters, the interest rate on home loans rose over nine per cent, representing a 40-50 per cent increase from the historical low of 6.5 per cent per annum. As a result, many home loan borrowers are feeling the impact of this significant increase in interest rates.”
Although there hasn’t been a significant impact on housing demand so far, any further increase in policy rates could push the home loan interest rate beyond the psychological barrier of 10 per cent, which could have a substantial impact on buyer sentiments and affordability.
To mitigate the loss caused by the increase in interest rates, government should not only restrict any further increase in home loan interest rates, but it should also encourage State governments to provide rebates on stamp duty.
Vimal Nadar, Head of Research at Colliers India, says: “Home loan interest rates are already at an alarmingly higher level of 9.5 per cent and above in response to the increase in repo rates. While the rationale for another potential hike is being justified for inflation containment amidst a global gloomy environment, it is pertinent to evaluate its adverse impact on the real estate sector.”
With home buyers already stretched on EMIs and loan tenures, a further hike in interest rate will hit them hard. The impact will be compounded in the current environment where the industry expects a lesser increase in income levels with housing prices remaining firm, he added.
