RBI India's central bank is likely to hike repo rates again to keep pace with inflation. The interest rate at which short-term funds are given is the interest rate at which it lends short-term funds to banks. After a small jump in May of 40 basis points 1 basis point 1 100th of a per cent, the interest rate increased two more times, to 140 basis points and taking the key to 5.40 per cent. This is in line with the US Federal Reserve, which just delivered its third straight 75 basis point hike without showing signs of slowing down.
Here is how the hike in the rate can affect people as the governor-headed Monetary Policy Committee prepares to begin its three-day deliberations on Wednesday, where the new will be decided.
An increase in repo rates means an increase in the cost of borrowing. The borrowing cost for banking institutions rises when the repo rate rises, which is passed on to account holders in the form of higher loan and deposit interest rates. According to Subhash Goel, MD, Goel Ganga Developments, banks began raising interest rates on lending and deposit schemes after the RBI made a statement. Residential sales growth will be affected by the increase in RBI's rate. In response to the rising raw material costs, builders throughout the country have raised real estate prices.
The rise in consumer demand and their capacity to afford will continue to be optimistic, and snugly interest rates may shake the momentum of sales, with the real estate market recovery continuing at a slow pace, Goel said to Livemint.
Suren Goyal, Partner, RPS Group, said that borrowing money from a bank becomes more expensive as a result of the slowing of investment and money supply in the market. The RBI's rate hike may affect the real estate sector, which has seen a good increase in sales due to low financing costs. Suren Goyal, Partner, RPS Group, said that as banks raise interest rates, EMIs for current borrowers go up even further, undermining the optimism of new homebuyers.
Even a small rate hike has an impact on consumers as it makes borrowing from the commercial banks expensive. The repo rate hikes affect all types of loans, such as home loan, vehicle loan, education loan, personal loan, business loan, credit cards, and mortgages. An increase in borrowing costs discourages spending of common man, thereby reducing the demand for goods and services. Ankit Aggarwal, MD, Devika Group, said this further disrupts the demand and supply chain.
The repeated rate hikes in a short period of time will have an adverse impact on the economic growth in the country, according to Amit Gupta, MD, SAG Infotech. While talking to Livemint, he said something.
People will buy fewer goods and services because of it, which will affect demand. Growth is slowed by this. The poor segments of society are no longer able to afford goods and services. It gets more expensive for everything. According to Ankit Aggarwal, MD, Devika Group, the increased rates are beneficial for consumers who have savings and fixed deposits.
Amit Gupta stated that India could face a stagflation by the end of the next fiscal year if the inflation-growth situation does not recover. Stagflation refers to stagnant growth, high unemployment, and persistent inflation.