–Lata Pillai, Senior Managing Director and Head – Capital Markets, India, JLL
RBI walks a tightrope and prioritizes growth even as it flags inflationary concerns driven by the energy crisis and a weaker monsoon; move likely to support RE market sentiment even as construction cost pass-through looms over buyers.
The RBI maintained the status quo on the policy rate, keeping it at 5.25%, the third successive instance of the same action, with the stance remaining neutral as well, while noting a more cautious approach being employed by other global central banks. With the escalating energy prices and El Niño effect likely to weaken the monsoon season raising their twin heads, the inflation outlook has been revised upwards. While the GDP outlook has been slightly moderated, it remains strong at 6.6% for FY27, post the strong 7.6% growth in the previous year per the 2nd advance estimates. Though the stance has changed, the pause is likely to further weaken the rupee amid hardening global yields, and we may see RBI interventions continue during the year to arrest the currency slide.
The impact of the energy crisis and supply chain dislocations is expected to weigh heavily, with inflationary pressures likely to rise, though inflation remains under 4%, comfortably within the target band. While a flexible inflation target provides headroom to monitor the impact of supply chain shocks as well as recent fuel price hikes, the RBI is expected to remain nimble footed to tackle rising inflationary concerns later in the year through potential rate hike actions. Predictions of a weak monsoon due to El Niño are also expected to have a bearing on inflation forecasts, with an upward revision potentially beckoning later in the year.
Growth forecasts have been moderated amid the lingering energy crisis and the spillover effects of the geopolitical conflict, with future concerns highlighted to reflect evolving ground realities that may alter the next course of action.
For the time being, the status quo on interest rates is positive for the real estate market, with certainty on lending rates for both developers and homebuyers expected to keep stakeholders relatively unfazed. However, the impact of rising construction costs looms large on the horizon, as developers may end up passing such higher input costs on to buyers, which may adversely impact affordability. Amid the shrinking share of affordable housing, this may further impact on the mid-segment buyer even as the higher-priced segments remain buoyant. However, diminishing stock market returns and overall uncertainty may start to take a toll on overall housing market sentiment to some extent going forward.