RBI's interest rate decision pragmatic, to keep EMIs stable, say experts

The RBI's decision to keep interest rates unchanged is pragmatic and on the expected lines, and ensures that EMIs on home and consumer loans remain stable, experts said on Thursday.

The Reserve Bank of India (RBI) left its key policy rates unchanged for a third straight meeting but signalled tighter policy if food prices drive inflation higher.

The monetary policy committee (MPC), which has three members from the central bank and a similar number of external members, held the benchmark repurchase rate (repo) at 6.50 per cent in a unanimous decision.

"As expected, the RBI has taken the pragmatic approach and kept the policy repo rate unchanged at 6.5%. The central bank has reiterated its commitment to bring inflation within the target band while continuing its focus on supporting growth," said EEPC India Chairman Arun Kumar Garodia.

While exporters are exploring new markets, the fiscal and monetary support remains crucial for the sector, which is key to generating jobs and earning forex, he said.

Unveiling the bi-monthly monetary policy, RBI Governor Shaktikanta Das said the Indian rupee has remained stable since January 2023 and foreign exchange reserves have crossed USD 600 billion mark.

Assocham secretary general Deepak Sood said despite challenges emanating from the global economy, the RBI-MPC has several positive macro takeaways like a sustainable GDP growth of 6.5 per cent, uptick in capacity utilisation in the manufacturing sector and revival of private sector investment in key sectors of the economy.

"The outcome of the policy review, notably, encompasses a wider spectrum including a boost to infrastructure funding, transparency in the EMI resetting for the borrowers and an innovative technology interface for the frictionless credit delivery through end-to-end digital platforms," he said.

The RBI also announced steps for responsible conduct in lending and bringing greater transparency in interest rate reset of Equated Monthly Instalments (EMI) based floating interest loans.

RBI has proposed a framework that envisages lenders should clearly communicate with the borrowers for resetting the tenor and/or EMI, provide options of switching to fixed rate loans or foreclosure of loans, and transparent disclosure of various charges incidental to the exercise of these options.

Sunil Dewali, Co-CEO, Andromeda Sales and Distribution said as the RBI maintains a steady stance on interest rates, the outlook is optimistic that the pivotal policy rate has found stability and may potentially decrease in the coming times.

"This bodes well for homebuyers, developers, and lenders alike. The enduring stability of EMIs, combined with the possibility of forthcoming rate reductions, is set to bolster the confidence of prospective homebuyers. Meanwhile, developers are poised to find relief, as the costs of project funding remain unaltered," he said.

Pradeep Aggarwal, Founder and Chairman, Signature Global said the surge in monthly EMIs observed over the past few months has considerably constrained the budgets of individuals belonging to the middle and lower-income brackets who aspire to own a home.

"By maintaining a steady interest rate environment, there is a hopeful projection that these potential buyers will be encouraged to proceed with their home buying plans," he said.

Ramesh Menon, Founder Director, Delhi Consortiums said that in the housing segment, consumers will feel more confident as the affordability will remain consistent.

"The price conscious housing segments witnessed some impact from constant rate hikes, this pause in repo rate increase will definitely boost consumer sentiments in the affordable housing category," he said.

The Reserve Bank started raising repo rate in May 2022 in wake of Russia-Ukraine war in a bid to check inflation, and by February this year the cummulative increase was 250 points. However, it did not raise the key rate in the subsequent monetary reviews.

Madan Sabnavis, Chief Economist, Bank of Baroda said that while the RBI has expectedly not changed the repo rate or stance this time, there has been a change in inflation outlook quite significantly.

"Interestingly the RBI has increased the forecast to 5.4 per cent from 5.1 per cent with the second quarter inflation crossing 6 per cent (6.2 per cent). This is indicative that for the present calendar year, there is no probability of a rate cut as inflation forecast for Q3 is placed at 5.7 per cent," he said.

A M Karthik, Vice President-Financial Sector Ratings, ICRA opined that given the increasing retailisation of credit, proposals to transparently disclose the implication of interest rate resets in floating rate loans and corresponding changes in the tenors and/or the changes in EMI is a welcome move to educate and inform the borrowers as they can better understand the impact of the changes in these terms while availing loans.

On the announcements on the UPI front, Ravi Battula, Vice President of Merchant Acquiring Business, Wibmo, A PayU Company said with UPI becoming ubiquitous and the advent of more smartphones, NFC is only a matter of time before it reaches mass adoption.

"Since NFC is still in its infancy, UPI Lite adoption could take some time to scale. On the other hand, merchants will have to upgrade their acceptance infrastructure for NFC, which they are currently happily supporting through QR," he said.

The RBI raised its inflation forecast for the current financial year ending March 2024 to 5.4 per cent from 5.1 per cent earlier, citing pressures from food prices. In the July-September quarter, it saw inflation at 6.2 per cent, significantly higher than the 5.2 per cent earlier forecast.