RBI takes strong stance to tame inflation: Ramesh Nair, JLL India

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Housing to maintain momentum as markets seem to have bottomed out.

The RBI has decided to hike prime lending rates by 25 basis points signalling an intentional move to keep CPI rates in control. This is the second hike in 2 months mostly on account of June CPI touching 5% which is higher than government expectation. This rate change was expected in light of increasing global oil prices, elevated inflation and the strengthening of the USD since the previous revision in June. The rate hike is aimed to add more stability to the current situation. Further, RBI will not want to make any changes to lending rates in the second half of the financial year, as India moves towards its festive season when majority of the buying activities take place. The RBI is mandated to maintain Inflation index around 4% or lower. There is also the pressure of maintaining the Minimum Support Price for agricultural products that has been pushing the government to create funds for payments.

This may be a mental setback for the end users as despite a healthy GDP, lending rates for homes and other desirable goods will move northwards. It may also affect the entry level housing market as very low ticket size purchase decision may pushed further. However, overall sales velocity is expected to remain stable for the rest of the year. Two major aspects that have been favourable for buyers are, the transparency brought in by RERA and other legislative reforms introduced in the last few years and stable capital values with a strengthening trend indicating that most major markets have bottomed out.