Relief for homebuyers as RBI leaves repo rate unchanged at 6.5%

RBI Governor Shaktikanta Das said that the apex bank would show the readiness to act, should the situation so warrant.

In a move that comes as an interim relief for home loan borrowers in India, the Reserve Bank of India’s Monetary Policy Committee (MPC) on April 6, 2023, decided to leave the repo rate unchanged at 6.5% in its first bi-monthly policy for the financial year 2023-44 (FY24).

However, Governor Shaktikanta Das said that the apex bank would show the 'readiness to act, should the situation so warrant', indicating the RBI go for a hike in future if the situation so demands.

"We are witnessing unprecedented uncertainties in geopolitics and economy," he said, adding that the central bank will remain focused on withdrawal of monetary policy accommodation.

All 5 members of the MPC voted in favour of maintaining the rate after “assessment of the current macroeconomic and financial conditions”.

Most policy experts had predicted the apex bank would go for a 25-basis-point hike in the repo rate as inflation concerns continue to loom.  

“The RBI has taken a bold step in keeping the repo rate unchanged at 6.5%, backed by the country’s macro-economic resilience, robust banking system and strong financial markets. This is the right step to assess the impact of the previous six consecutive rate hikes working their way through the current inflationary cycle and overall economy,” says Samantak Das, chief economist and head – research and REIS, India, JLL.

Since May 2020, the banking regulator has increased the repo rate cumulatively by 250 basis points as it tackled stubbornly high inflation. The RBI raised the repo rate by 40 basis points in May 2022, followed by a 50-bps increase each in June, August and September 2023. Another hike of 35 bps was announced in December 2022, followed by a 25-bps hike in February 2023.

“Given that the affordability synergy was under challenge with home loan EMIs rising by 15-17% from April 2022 and home prices also increasing during the same period by 4-12%, the current status quo in policy rate will provide some respite. This should positively support the current home-buying sentiment,” he adds. 

“The RBI move to leave the repo rate unchanged at 6.5% in its first bi-monthly policy for fiscal 2023-24 comes as a major relief for the industry in general and homebuyers in particular. If the RBI had gone for another rate hike, lending rates would have reached a record high level that may have impacted the positive buyer sentiment the housing sector has witnessed in the past one year. By hitting a pause button in a surprise move, the banking regulator has signaled it is willing to support growth even as it tackles concerns over inflation,” says Dhruv Agarwala, Group CEO, Housing.com, PropTiger.com & Makaan.com.