India’s Central Bank Repo Rate Stifles Market

A higher than expected lending rate hike by the State Bank of India, the country’s biggest lender, has markets reeling. India’s stock market fell this morning on the news of a point 5 percent increase, twice was was anticipated be experts. Sensex dropped some 353 points to 18.518, while the Nifty closed 105 points lower at 5,574. The Repo rate hike stands to stifle Indian recovery, according to some experts.

RBI raises repo rate twice what was expected

The massive selloff today stands to hurt key sectors of the India economy including; real estate, banking, auto and other capital goods sales, and in the long term – some believe, the overall recovery. Four key bank stocks, HDFC ,  HDFC , ICICI Bank, and  SBI lost a huge percentage of the total Sensex fall.
Already, the real estate sector is a buzz over a hike that will further exacerbate the situation there. Poor sales and high input costs have already dampened the property market of India, and RBI’s unexpected extra hike points will only make things worse. Pradeep Jain, Chairman of the Confederation of Real Estate Developers’ Association of India (CREDAI), told reporters:

“Unless steps are taken to improve supply system, this increase by RBI is going to have a minimal effect on inflation. While we were expecting a moderate hike of 25 bps, the 50 bps raise is going to dampen growth. This will make cost of funds expensive for both developers and buyers, coupled with constant increases in input costs, making the business environment very complex across industries.”

The bottom line here is, residential buyers are going to be hit hardest by these rate hikes. This is bad business where sales are concerned. The margin for smaller banks is going to be even worse, and cities where purchase rates and prices are highest will be hit hardest. Workers just able to float loans across India, will now be shut out. So, while RBI may recoup margin at one end, a massive loss overall could take place. RBI’s hike only makes sense if the overall market – mid to long term – recovers.

Lalit Kumar Jain (right),  National President CREDAI, pointed out that the needed housing development funding for the next few years there in India, exceeds $3.2 trillion dollars US. In effect, RBI’s move may have far more dramatic ramifications than even experts predict. This is a case of too much, too soon for many.

The Reserve Bank of India (RBI) has basically used a shotgun to kill the mosquito of inflation here. Now, asset quality may further detirorate  as sensitive sectors respond to this unexpected twist. Commercial real estate, for one, is particularly subject to over scrutiny and key quality issues.

Most Indian banks showed a decline in net interest margins in their June earnings statements, and this is one huge indicator of profitability for banks. RBI’s move would seem to be putting the squeeze on many banks and other lending institutions there. While most banks do not fear for the long term, almost all suggest the market will become compressed over the short term. We will have more as the news comes in.

We leave you with


Phil Butler

Phil Butler is a former engineer, contractor, and telecommunications professional who is editor of several influential online media outlets. Phil began his digital ramblings via several of the world’s most noted tech blogs, at the advent of blogging as a form of journalistic license. A graduate of The College of Charleston, Phil also served in the United States Navy, and has worked for any number of Fortune 500 companies. Together with his wife and partner Mihaela Lica Butler, Phil also helped forge Pamil Visions PR into one of the most successful online PR companies in the world. His greatest accomplishments however involves being the best husband, father, and friend he can be.

Recent Posts

America’s Top 10 Lawn Care Services For Homeowners

The average American spends over 70 hours a year working in their yard. 70 hours - almost…

2 hours ago

Why Mortgage Applications Continue to Decline

According to recent data, mortgage applications are at their worst in 22 years. Just a short time…

2 hours ago

Deciding Between A Personal Loan or a 0% APR Credit Card

Whether you are trying to save a down payment for a first home or need…

19 hours ago

Why Real Estate Agents Should Advertise Their Listings Online

It's no secret that we're in the digital age, and real estate agents have had…

19 hours ago


The LGBTQ+ Real Estate Alliance today unveiled its second-annual LGBTQ+ Real Estate Alliance Top Producers…

22 hours ago

Zillow study highlights higher mortgage fees for buyers with lower credit scores

Elevated home prices and rising interest rates are feeding into housing affordability woes for potential…

1 day ago