Key Facts:
The repo rate (repurchase rate) is the interest rate at which the central bank lends money to commercial banks when there is a shortage of funds.
Reserve Bank of India, abbreviated as RBI, is the central bank of India, and regulatory body responsible for regulation of the Indian banking system and Indian currency.
Prime Highlights:
The rate cut is expected to lower EMIs on home loans, providing relief to existing buyers and boosting housing demand.
Tax cuts in Budget 2025 for the middle class complement the RBI’s decision, enhancing affordability and further stimulating the housing market.
Key Background:
The Reserve Bank of India (RBI) reduced the repo rate by 25 basis points to 6.25%, marking its first rate cut in nearly five years. This decision, made under the leadership of Governor Sanjay Malhotra, is anticipated to provide significant relief to homebuyers by lowering equated monthly installments (EMIs) on home loans. Coupled with tax cuts in Budget 2025, aimed at benefiting the middle class, this rate reduction is expected to spur overall housing demand.
Experts in the real estate sector believe that the RBI’s move will enhance affordability for homebuyers, potentially reviving market sentiment. The rate cut, combined with the government’s tax relief measures, comes at a crucial time, with the hope of reigniting consumption and stimulating economic growth. However, some experts caution that rising property prices and persistent inflation could dampen the effectiveness of this policy unless banks pass on the full benefit of lower rates to borrowers promptly. Samantak Das, Chief Economist at JLL India, described the rate cut as a strategic alignment of fiscal and monetary policies designed to drive spending and investment. “By easing the cost of capital, the RBI injects vital momentum into the economic engine, setting the stage for a resurgence in spending and investment across the board,” he stated.
Vimal Nadar, Head of Research at Colliers India, noted that the rate cut comes at a favorable time, as housing demand had started to stabilize after record sales in recent years. The reduction is expected to boost buyer sentiment and help sustain market activity, particularly in the mid-income segments. Sahil Agarwal, CEO of Nimbus Group, emphasized that lower borrowing costs would not only support homebuyers but also enhance liquidity, thus driving consumption and economic growth.
The move is also expected to benefit the commercial real estate sector, especially office spaces and real estate investment trusts (REITs), by reducing borrowing costs. However, challenges remain, including the need for banks to pass on the rate benefits effectively and the potential impact of inflation on rising property prices.
