The rate hike will impact the demand for affordable housing

12 May 2022 CW Team

The RBI raised the repo rate by 40 basis points for the first time in almost two years to combat inflation that surged in March. Despite the RBI's continued "accommodative" approach, the scope of upcoming rate hikes appears unavoidable, with retail inflation hanging well above the RBI's outer tolerance range of 6 per cent in March. Furthermore, the RBI has stated that due to rising global food costs, the April Consumer Price Index (CPI) is projected to stay elevated.

The Monetary Policy Committee will "keep vigilant" of the incoming data, according to the RBI statement following its off-policy move. While there is still promise for broad-based development with the return of contact-intensive services post-COVID, the dangers of high input costs being transmitted remain "unprecedented."

The unexpected hike in the middle of a meeting, as well as the possibility of more such adjustments, are likely to cause a knee-jerk reaction among purchasers in the cheap housing market. The real estate industry is already dealing with a 35-50 percent increase in input cost prices over the previous year. This may result in a gradual increase in real estate values, however they may be capped in the short term at single digits.

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