The Reserve Bank of India (RBI) announced a 50 basis points (bps) cut in the repo rate on Friday, bringing it down to 5.5 per cent. The cut, larger than the widely anticipated 25 bps, is seen as a strategy to push growth amid inflation.
While the central bank`s decision has been broadly welcomed, experts said a cautious approach must be adopted amid global uncertainties and potential inflationary triggers ahead.
Financial expert Dilshad Billimoria told mid-day.com that the rate cut signals the RBI`s urgency in reviving economic momentum.
“RBI announced a rate cut of 0.5 per cent today. This came as a surprise because an expected rate cut of 0.25 per cent was on the anvil. I think the concerns of ensuring that the economy comes back to a growth cycle is what was more important as of now,” she said, adding, that while the cut has pushed bond yields upward, markets have reacted positively, reaching new highs.
“The stance has moved to neutral, and it’s a wait-and-watch approach when it comes to further rate cuts, which may be unlikely this year,” Billimoria added, pointing to key factors such as oil prices, fiscal discipline, monsoon trends, and the current inflation rate, now at 3.7 per cent as determinants for future policy action.
Meanwhile, the real estate sector, which has long been reliant on lower interest rates for both consumer and developer sentiment, has lauded the decision.
Anshuman Magazine, Chairman and Chief Executive Officer (CEO) of India, South-East Asia, Middle East and Africa at CBRE, called the repo rate cut a “significant move”.
“RBI`s decision to cut the repo rate by 50 basis points will have a positive impact on the economy and various sectors, including real estate. This reduction is expected to lead to lower borrowing costs, increased liquidity, and enhanced consumer spending power. For the real estate sector, this move is particularly beneficial as it will make home loans more affordable, stimulating demand and driving growth. The reduced interest rates will also encourage developers to take on new projects, boosting construction activity and creating employment opportunities,” he said.
Anuj Puri, chairman of ANAROCK Group, also welcomed the decision.
“As widely anticipated, the RBI decided to reduce the repo rates by 50 bps to the backdrop of moderating inflation… This can potentially boost demand in the Indian real estate sector, especially in affordable and mid-income segments,” he said.
Citing ANAROCK data, Puri highlighted that affordable housing has struggled since the pandemic, with the sector’s sales share dropping from 38 per cent in 2019 to 18 per cent last year, and supply share shrinking from 40 per cent to 16 per cent. However, a 19 per cent dip in unsold inventory indicates resilient end-user demand, he said.
The rate cut, combined with a reduction in the Cash Reserve Ratio (CRR), is also expected to improve liquidity for banks and lower borrowing costs for developers.
“Developers will be able to access more capital for their projects, and this can positively impact project completion timelines. It also gives banks the option to reduce home loan interest rates,” he added.
However, Puri also warned of global challenges.
“These positive impacts may be partially dampened by ongoing global trade tensions… which have increased the cost of imported construction materials. Developer margins may be squeezed, especially in the luxury and commercial segments.”
