The RBI’s decision to rise its policy rates, leading to hike in lending rates by banks, will adversely affect the sectors like real estate and automobile. These increases in the policy rates will raise the cost of properties as it increases cost of funds. The RBI’s hiking of the repo rate by 25 basis points is far from good news for the real estate sector, especially in terms of housing.

“Purchasing activity had already dropped, chances of minimising the property prices by developers to counter the negative effects of this hike depend on the financial ability of individual developers to hold on to their current pricing and risk losing sales till the situation improves.

Developers with enough capital as base are less likely to relent on their pricing than smaller developers with an urgent need to sell their inventories. The industry is already revolving under the high input costs and coupled with high sanction costs, it has to pass on the same to end user. However, hope is that the development will not discourage buyers of their buying decisions.

ICICI Bank , Country’s largest private sector bank, Managing director & CEO, Chanda Kochhar said that the RBI’s decision to increase the repo rate by another 25 bps and the existing systemic liquidity conditions could lead to an increase in funding costs for banks, and in lending rates.

RBI continues with its tight monetary policy to contain inflation. However, many analysts doubtes its efficiency to contain inflation. But, the measure will certainly affect the economic growth of the country.  The increase in the interest rates will not only make the loan costly but will also reduce the entitlement of credit of a debtor. According to banking norms, while approving loan to a borrower, bank see to it that the EMI on the loan should not exceed the 40% of the total monthly income of the family. As increase in interest rates will lead to rise in EMI and will bring down the claim of loan amount of a debtor on the same income.