In a significant move aimed at stimulating economic activity and easing the financial burden on borrowers, the Reserve Bank of India (RBI) has announced a 50 basis point cut in the repo rate, bringing it down to 5.5%. This decision, taken unanimously during the Monetary Policy Committee (MPC) meeting held from June 4 to 6, exceeds market expectations and is being seen as a proactive measure to support growth amid a softening inflation environment.
Major takeaway for homebuyers and borrowers
This steeper-than-expected rate cut is set to ease equated monthly installments (EMIs) on long-term loans, particularly home loans. With lending costs likely to fall, banks and financial institutions are expected to pass on the benefit to consumers, making borrowing more affordable. This move is especially encouraging for prospective homebuyers in the mid-income segment, who stand to gain from lower interest payments.
RBI outlook: Steady growth, easing inflation
RBI Governor Sanjay Malhotra explained that despite a fragile global economic backdrop and downward revisions in international trade forecasts, the Indian economy continues to show resilience. “India’s strength comes from the strong balance sheets of five major sectors. We are already growing fast and aspire to grow faster,” he remarked.
Inflation has remained within RBI’s comfort zone, with retail inflation falling to 3.16% in April from 3.34% in March. The central bank now projects the retail inflation for the current financial year at 3.7%, an improvement from its earlier forecast of 4%. Food inflation remains soft, and core inflation is expected to stay benign.
CRR reduction adds liquidity
In another key decision, the RBI also reduced the cash reserve ratio (CRR) by 100 basis points, effectively releasing ₹2.5 lakh crore into the banking system. This is likely to enhance liquidity and improve the capacity of banks to lend.
Sectoral impact: Real estate gets a boost
The real estate sector has welcomed the rate cut. According to experts, the move is likely to strengthen homebuyer sentiment, drive enquiries, and lead to an uptick in residential property sales, especially in urban markets. Vimal Nadar of Colliers India noted that the reduced borrowing costs could significantly improve affordability in mid-income housing.
Piyush Bothra, co-founder of Square Yards, highlighted that the decision will give developers confidence to launch new projects, particularly in low-to-mid housing segments. “A 50-bps reduction will translate into meaningful EMI savings,” he said.
India remains attractive for investors
Governor Malhotra underscored India’s appeal to global investors, noting that the country’s forex reserves stand at $691 billion—enough to cover over 11 months of goods imports. Key economic indicators including discretionary spending, private consumption, and industrial activity remain robust, he added.
While maintaining the GDP growth projection at 6.5% for the current financial year, the RBI outlined quarterly growth expectations as follows: 2.9% (April-June), 3.4% (July-September), 3.9% (October-December), and 4.4% (January-March).