Impact of unchanged repo rate: What’s ahead for homebuyers, fixed deposit investors, debt mutual funds and real estate sector?

On April 6, 2023, the Reserve Bank of India (RBI) held its bimonthly monetary policy meeting and chose to leave the repo rate at 6.5%. In an unexpected decision, the MPC reduced the average inflation rate for FY2024 to 5.2% from 5.3% earlier and revised real GDP growth for FY2024 to 6.5% from 6.4% earlier, amid worries about a global downturn. Homebuyers may profit from stable home loan interest rates thanks to the central bank's decision to maintain the repo rate at its current level, while investors in fixed deposits may not see an extra kick in rates. Let's consider the perspectives of many industry experts to determine how fixed deposit investors, debt mutual funds, and the real estate sector may prosper moving forward.

Jaideep Arora, CEO, Sharekhan by BNP Paribas

Contrary to expectations of 25 bps hike in policy rate, RBI has decided to take a pause in interest rate hikes this time around. However, it has kept the window open for any further action on interest rates depending upon the incoming economic data and any changes in the global macro scenario. Interestingly, the decision to not go for a rate hike is an unanimous decision by members of the Monetary Policy Committee (MPC). Also, for fiscal 2023-24 (FY2024), the projections for real GDP growth rate increased to 6.5% (up from 6.4% earlier and higher than the projections by World Bank and IMF) while the forecast for retail inflation is reduced to 5.2% as against 5.3% earlier. 

The overall commentary is also quite positive with expectations of a broad-based growth in the economy with financial stability reflected in the rising forex reserves and current account deficit under control. Markets are reacting positively to the policy with easing of bond yield and upsurge in the interest rate sensitive stocks. We remain positive on equity markets and expect interest rate sensitive sectors like real estate, auto, banks, financials along with engineering/capital goods to lead the rally in the near-to-medium term.

Marzban Irani, CIO - Debt , LIC Mutual Fund

Post policy rates are expected to trade in the range of 7.10 to 7.30 on 10 year. Rates will be range bound as no immediate action is expected at this juncture. Rate cuts are away by six to nine months. End Dec to early next year we might see rate cuts. Till then home loan rates will remain high, FD rates similar. However mutual funds might see better performance as yields decline on assumption of rate cuts going ahead.

Abhinav Angirish, Founder, Investonline.in

During its semi-monthly review of monetary policy, which took place on Thursday, the Reserve Bank of India (RBI) opted to maintain the repo rate at its previous level of 6.50 per cent. After increasing the repo rate by 250 basis points since May of last year to bring inflation within its tolerance limit, the Reserve Bank of India (RBI) paused its repo rate increases to assess its progress thus far, sending a positive signal to the real estate market and prospective homeowners.

There will be a collective sigh of relief from homeowners at this news, since they have been feeling the strain of increased interest rates and longer loan terms. This is good news for real estate sector as a whole which was reeling under pressure of rate hikes.

The vast majority of those involved in the money markets anticipated that the banks regulator would increase the rate by 25 basis points today and then suspend further increases. Investors in mutual funds, particularly those who invest in debt funds, can, nevertheless, anticipate stronger returns as a result of the MPC's market shock.

Debt funds typically suffer losses when interest rates rise. Due to the inverse relationship between bond yields and prices, bond prices decline as interest rates rise. In other words, when rates are rising, debt mutual funds give meagre returns. The rewards are higher when the central bank keeps or lowers rates.

Long-term investors should avoid risky asset classes and instead focus on liquid, extremely short duration, low duration funds, etc. Investors should remember that their allocation should always be determined by their long-term objectives and time horizon. If investors are willing to take the risk and participate in the length game, then they should invest in long-term funds.

Despite RBI maintaining the repo rate, the increase over the past 11 months has totalled 2.5%. A year ago, FD investors were facing one of the lowest interest rates on FDs seen in the last two decades; now, they are hoping to reap the rewards of all the recent large repo rate hikes by earning higher returns on their bank FDs. 

Higher interest rates are only available for medium-term FD terms of one to three years from the banks that are offering them. When it comes to terms longer than 5 years, many of the institutions give their best rates to retirees, but not to the more general public.

The cycle of repo rate hikes may seem like it has come to an end, but the increase in FD interest rates may go on for a while longer. Even if the repo rate has gone up, not all banks have increased their FD interest rates to match. Banks will need some time to boost rates further. More concrete guidance will be provided by the next monetary policy, which is due for June of this year.

Ashok Kadsur: Co-Founder, SignDesk

Keeping the repo rate unchanged is a welcome move as it will have a positive impact on home buyers & fixed deposit investors. We can also expect an increase in balance transactions in the real estate sector, which will strengthen the sector & create more opportunities for growth. Overall, this is a step in the right direction in terms of helping manage inflation and easing pressures on homebuyers.

Rakesh Reddy, Director, Aparna Constructions and Estates Pvt

The RBI’s decision to keep the repo rate unchanged at 6.5 per cent was unexpected, but maintaining the status quo is a positive sign and will provide much needed support to the real estate sector. Undoubtedly, a further reduction in interest rates would have been the preferred course of action to bolster overall market confidence. 

However, it is imperative to exercise a measured approach during this period in order to pave the way for sustainable economic growth and stability in the long run. Given the current global environment characterized by uncertainty and persistent inflationary risks, it would be prudent for the RBI to maintain the option of implementing further monetary policy tightening in the future, should the need arise.

Maintaining the status quo is especially critical during periods of economic uncertainty as an increase in the interest rate would have adversely affected housing demand and derailed momentum. This presents an extended opportunity for homebuyers who can take advantage of attractive home loan rates. This indicates that lending rates are not expected to increase from current levels for the foreseeable future. As a result, this is expected to trigger the homebuying sentiment in the market. 

Notwithstanding the current level of inflation, it is probable that there will be a downward trend in the future, especially since monetary policy updates can lag up to 1 year before they affect the real economy. Consequently, it is unlikely that the RBI will have to undertake any further rate hikes in the year 2023. We expect a continuation of existing policy rates throughout 2023 and hoping that the RBI will continue to take positive steps to capitalise on the renewed growth of the sector and make it more enticing for home buyers.

Overall, the decision will have a positive impact on the real estate sector as the cost of financing for both developers and home buyers will not increase. 

Siddhart Goel, Head of Research, Magicbricks

The decision of the Reserve Bank of India to maintain the Repo Rate is anticipated to yield a favorable impact on the real estate market. This measure is likely to provide much-needed relief to homebuyers who have been adversely affected by inflation and increasing interest rates or loan tenures. 

Currently, the demand for residential properties remains robust in metropolitan areas as well as in emerging real estate growth centers like Chandigarh, Nagpur, Coimbatore, and others. According to the Magicbricks Propindex report (Jan-Mar 2023), residential demand increased 14.2% YoY and considering these dynamics, we posit that this decision is likely to bolster the sentiment for property-buying and contribute to the expansion of the real estate sector.

Shrey Jain Co-Founder & CEO at SAS Online

India is probably one of the first nations to have a change in stance and go ahead with rate pause. Amid the global banking crisis and emerging recessionary fears, this signifies India is well positioned in comparison to its peers. 

This repo rate pause comes after six hikes in a row. It means that they have decided to maintain the current level of interest rates at which banks can borrow from the RBI. Rate pause will definitely support growth across sectors, especially real estate.

Residential real estate especially in the mid and low-income level category will get a breather as this segment is quite sensitive to interest rates. Not only do higher interest rates discourage home buyers they also lead to increased borrowing costs for developers thus impacting project costs.

As the repo rate remains unchanged, commercial banks may also keep their lending and deposit rates relatively stable. Fixed Deposit rates may remain unchanged or may see only minor adjustments. We may be at the peak of the interest rate cycle and investors can look at locking it long term debt at these rates. 

Edul Patel, Co-founder and CEO at Mudrex

The repo rate is the interest rate at which the RBI lends money to commercial banks. When hiked, it increases borrowing costs for banks and can lead to higher interest rates for consumers. The RBI's decision to keep the repo rate unchanged is good news, as interest rates on loans will likely remain stable for now. This decision indicates that the RBI is taking a cautious approach to managing inflation and economic growth. 

It also suggests that the RBI is confident that the current economic conditions are stable enough to support the decision to keep the repo rate unchanged. Overall, the decision to keep the repo rate unchanged is a positive development for home buyers and investors, as it provides them with some stability and predictability regarding interest rates on loans.

Ameet Venkeshwar, Business Head, LoanTap

People should be watchful as it is still not sure if RBI has reached the optimal rate. Repo rate is currently restrained but another 25 bps is still on the cards. This may happen any time in the next 1 or 2 months. Home buyers must consider this while taking loans as a 25bps increase can increase the loan tenure by up to 2 years. If this doesn’t change then fixed deposit rate also might not change further. In real estate, again buyers should be watchful as it’s not sure if it has reached the optimal pricing.

Harsh Gahlaut, CEO, FinEdge

The RBI sprung somewhat of a surprise by keeping key rates unchanged, against the consensus view of a 25-bps hike. This hints at the regulator’s long-term focus on economic growth, which bodes well for equity investors.  

Bond Markets reacted positively to the development with the yield on the 10-year G Sec promptly falling by 10 bps to 7.17%. Since inflation seems to be under control and we appear to be nearing the terminal interest rates for this hike cycle, this is a good sign for debt funds which could deliver FD+ returns over the next 2-3 years after a protracted slump. If rate hikes go on a pause for the medium term, Fixed Deposit rates are unlikely to go up significantly from current levels. 

Homebuyers should not base their decision to take up a loan or not based on these events, because home loan rates are reset periodically and will go through multiple cycles over the course of a 15-25 year period. So, there is really no point in trying to “time” a home loan per se!

Broadly speaking, equities are at attractive valuations and with limited headroom for further rate hikes, we could see both equity and debt mutual funds doing well from here on. Investors would be better off continuing to investing systematically in both asset classes basis the tenor of their financial goals instead of trying to adjust their asset allocation based on these events.

Rajeev Yadav, MD and CEO at Fincare SFB

The Reserve Bank of India (RBI) has decided to maintain an accommodating stance and keep the repo rate at 6.5%. Homebuyers may benefit from stable home loan interest rates, but fixed deposits investors may not experience an immediate increase in interest rates. The real estate industry may benefit from home loan rates being held. Since the rate pause is only for April, stakeholders need to continue to monitor changes that might have an effect on the market in the future.

Kishore Reddy, CMD, MANA Projects

The decision to maintain the repo rate is likely to have a positive impact on homebuyers as it means that interest rates will remain unchanged.  This can lead to a growing optimism in the real estate market as there will be a sense of relief, particularly for mid-range and luxury housing sectors, with an expected increased demand and growth. 

However, given the start of the new financial year, this presents an opportune time for investors to plan and take investment decisions, particularly in the real estate sector. With stable home loan rates, potential homebuyers are likely to be more confident in taking the step towards investing in luxurious real estate projects, which could yield substantial returns in the long run."

Ashwani Awasthi, Managing Director - South Asia, RICS

RBI’s decision to take a pause and keep the repo rate unchanged is a very welcome move for the home buyers and the real estate sector. The real estate sector which had seen a robust growth in sales post pandemic was also facing over 30 percent increase in the cost of construction from pre-pandemic levels. While they were able to pass on 4 to 12 percent of the increased cost to the buyers by increasing the sales price but were still absorbing majority of the cost to keep the sales momentum going. Keeping the rates unchanged will surely help maintaining the sales momentum and preventing any slowdown in the real estate market.

Sumeet Srivastava, Founder & CEO, spocto (a Yubi company)

While the RBI's decision to keep the repo rate unchanged is unlikely to have an immediate impact on homebuyers, it does offer some stability to the real estate sector. The Government's efforts to boost economic growth, could help improve sentiment in the market."

Regarding fixed deposit investors and debt mutual funds, it's important to note that interest rates are just one of many factors that determine their returns. Other factors, such as inflation and market conditions, also play a role. It's always wise to consult a financial advisor and diversify your investments to mitigate risk.

Overall, the RBI's decision is a positive economic development and could help bolster the real estate sector in the long run.

Anoop Kumar Bhargava, Chief Executive officer and Director at Empire Centrum

For homebuyers, the unchanged repo rate means that the cost of borrowing for home loans is likely to remain stable in the near term. This could provide some relief to homebuyers who have been struggling with high property prices and rising interest rates over the past few years. However, if inflation remains high, the RBI may need to increase the repo rate in the future, which could lead to higher interest rates on home loans.

On the other hand, for the real estate sector, the RBI's decision is likely to be a mixed bag. The stable interest rates could help boost demand for housing and support the overall real estate market. On the other hand, the real estate sector is facing other challenges such as oversupply, high inventory levels, and the impact of the pandemic on the economy. These factors could limit the growth potential of the sector in the near term.

Overall, while the RBI's decision to keep the repo rate unchanged may provide some short-term relief to homebuyers, the real estate sector is likely to face continued challenges in the near future. It is important for homebuyers and real estate developers to stay informed about the latest trends and developments in the market to make informed decisions.

V P Singh, Director - PGDM & Professor - Managerial Economics & Statistics, Great Lakes Institute of Management

Rising home loan interest rates had dampened the home buying spirit to some extent. This halt is a sign of softening of interest rate in future. It’s a respite for home developers as well as the home buyers. Home developers can expect better margins. Real estate firms will benefit significantly. Home demand triggers demand for cement, furniture, cables, power, home Equipments and what not! Investment in the economy will pick up. Fixed deposit investors were already unhappy given the interest income versus inflation situation. Now, an unchanged repo rate is a sign of expectations of falling inflation and that should bring cheer to them.

Rising interest rate is a bane for current bond holders and debt MF investors. So, no increase is a good news for them too.

Dinesh Bansal, Chairman UK Realty

It was crucial for the RBI to maintain its cautious approach given the escalating effects of the financial instability and global banking stress. We appreciate the RBI's decision to stop hikes in interest rates and diverge from the global tightening trend. We concur with the central bank's assessment that the system should be allowed to absorb the lag effects of previous rate rises rather than having demand stifled by additional rate increases.

Since this move has been taken at the start of the new financial year, we anticipate positive sentiments in the real estate sector with continued growth. Now, the potential homebuyers will be urged to finalize their purchase decisions boosting the sales especially in the aspirational category.

Pratik Kataria, Director of Sainath Developers

Undeniably,  the performance of the housing market is largely determined by interest rates and home prices. The flat buyers who have zeroed in on the purchase of their real estate asset will be encouraged to execute the purchase of their asset at encouraging interest rates on home loans, which is a very welcome move by the RBI to keep the repo rates unchanged. 

While buying a home the consumer takes multiple factors into account as in India is not only considered as an investment but also plays a sentimental value and is considered as a symbol of affluence in our society. Hence, when a buyer decides to buy a house, they plan it for years before committing to it. Additionally, factors like offers from developers, reduced documentation with the help of tech, quick home loan approvals and tax relaxation by the Government play a crucial role in the times to come for the sector.

Ashok Singh Jaunapuria, Managing Director and CEO of SS Group India

Homebuyers: The decision to keep the repo rate unchanged means that the cost of borrowing for banks will remain stable. This could lead to stable or slightly lower interest rates on home loans for buyers, making it an ideal time to invest in real estate. However, it's essential to note that many other factors also affect the real estate market, such as demand, supply, and economic conditions.

Fixed deposit investors: Fixed deposit investors may not see any significant changes in their returns, as interest rates are expected to remain stable in the short term. However, as economic conditions improve, interest rates may rise, leading to higher returns for fixed deposit investors.

Debt mutual funds: Debt mutual funds invest in fixed-income securities such as government bonds, corporate bonds, and money market instruments. The decision to keep the repo rate unchanged could lead to stable or slightly lower returns for debt mutual funds. However, the fund's performance also depends on the fund manager's ability to pick the right securities and manage risks.

Real estate sector: The real estate sector could benefit from stable or slightly lower interest rates on home loans. This could lead to increased demand for housing, which could boost sales and prices in the sector. However, it's essential to note that other factors also impact the real estate sector, such as regulatory changes and economic conditions.

Overall, the RBI's decision to keep the repo rate unchanged could have a positive impact on the economy, as it provides stability and certainty to various sectors. However, it's essential to keep an eye on other factors that can impact these sectors in the short and long term.

Binitha Dalal, Founder and Managing Partner, Mt K Kapital

The RBI's Monetary Policy Committee (MPC) has opted to maintain the policy repo rate at 6.50%, as well as other policy rates. The governor's bold decision to pause interest rates amidst a global trend of increasing rates is a strong show of support for India's growth trajectory. The stable interest rates are expected to drive growth in the real estate sector, as they will help maintain sales and keep interest cost on real estate development in check. Furthermore, recent changes to capital gains on debt mutual funds have led to an increase in deposits in FDs and AIFs, which should improve credit flow to the sector. FD rates are currently at an all-time high, and investors are choosing to park their money in banks as a safer choice of investment.

Overall, the governor's decision is supportive of India's ambition to become the world's third-largest economy and reflects a commitment to India's growth story. This move is likely to attract foreign investment and encourage companies to set up operations in India for both manufacturing and services.

Chetan Patel, Director, Gurukrupa Group

RBI keeping the rates unchanged this time is a positive move and will definitely have a positive impact on home buyers sentiments. This will assist the banks to not increase the home loan rates which are currently around 8.75 to 9%. We have witnessed continuous increase in repo rates in the last one year which in turn impacts the home loan rates, as it becomes expensive with each increase. It had negatively impacted the home buyer sentiments as they were waiting for home loan rates to be stabilized. Even the existing home loan customers were in a spot of bother. Due to hike in the repo rates their loan tenure keeps on increasing and in some cases the EMIs have gone up.

Angad Bedi, Managing Director, BCD Group

Even though industry experts were of the view that the RBI would hike repo rate by up to 25 basis point in the first bi-monthly policy of the current fiscal, the MPC has given the real estate sector a pleasant surprise by hitting a pause button on the expected rate hike. The move not only comes as a breather for borrowers but also for the developer community that has been reeling under the combined pressure of an increase in prices of building materials amid a drastic jump in lending rates. The RBI is an indication the banking regulator is willing to walk the extra mile to support growth.

Sankey Prasad, CMD, Colliers India

RBI has taken a bold step in keeping the repo rate unchanged at 6.5%, backed by the country’s macroeconomic resilience and strong financial markets. Today's decision will further help boost demand in residential real estate, the economy's growth engine.

India’s residential markets have maintained noted 15-year high sales maintaining their trajectory in the first quarter of 2023. This will bring in a new wave of optimism amongst home buyers resulting in higher property sales.

Likhita Darshan, Vice President - Marketing & Customer Experience, Vaishnavi Group

RBI's decision to maintain the status quo on the policy rate comes as a major relief for homebuyers who have seen their EMI swelling up by up to 17% as compared to April 2022.

In the residential real estate segment, buyer sentiment has continued to be robust and this has resulted in home sales showing an appreciable rate of growth.

With the apex bank maintaining lending rates this time around, this positive sentiment would get a further boost, reflected in improved sales traction and a healthy pipeline of supply in the ongoing quarter.