The Reserve Bank of India (RBI) announced its sixth bi-monthly monetary policy for FY25 today, February 7, 2025. The Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, presenting his first monetary policy review has announced a 25 basis point rate cut to bring down the benchmark repo rate to 6.25%; a first in five years and maintain the monetary policy stance as ‘Neutral’.
The move is being hailed by the sector as in a high-interest rate environment where homebuyers have been feeling the pinch of rising EMIs, this rate cut will provide much-needed relief to existing and prospective homebuyers, boosting housing demand and enhancing affordability.
As per Dr Niranjan Hiranandani -Chairman- NAREDCO, "It is a welcome move by the Reserve Bank of India to reduce its repo rate by 0.25 basis points. After a period of steadiness in the repo rate, this long-awaited and strategic move comes at a crucial time. As inflation is now under control, the fiscal deficit remains moderate, and economic growth is expected to accelerate steadily, the reduction in the repo rate signals a renewed sense of resilience. Additionally, it assures us that despite external geopolitical uncertainties, our domestic economic climate keeps markets efficient and demand robust. Combined with the tax benefits announced in the FY26 budget for the middle class, this policy change will boost sales velocity. Thus, lowered interest rates will further nudge homebuyers to buy an ownership home with an upgraded lifestyle."
Boman Irani, President, CREDAI National stated, "The RBI’s decision to reduce the repo rate by 25 basis points to 6.25% supplements recent announcements in the budget aimed at boosting spending and spur economic growth. This supportive monetary policy was imperative, especially after the recent 50-basis-point reduction in the Cash Reserve Ratio (CRR), which has already injected significant liquidity into the banking system. As inflations continues to remain a notch higher than the medium-term target of 4%, the central bank has its task cut out - Contain inflation, inject liquidity into banking system and cut repo rates in the coming quarter too. While the current cut may have a limited direct impact, we anticipate that a further rate cut in the next MPC meeting will provide stronger impetus to overall demand, accelerating housing sales, particularly in the mid-income and affordable segments. Together, these measures signal a robust framework for sustainable growth, fostering confidence among homebuyers, developers, and investors alike.”
In terms of the impact on the housing sector of the RBI's decision to reduce the repo rates by 25 bps, this piggybacks on the recent taxation benefits announced in the Union Budget. As such, it is undeniably a major boost to the homebuyers, particularly for affordable housing buyers. Many first-time homebuyers who had been hesitating to take the plunge are likely to make their move now as home loan rates will reduce - as long as banks pass on the key benefits to buyers.
This dovetails well with recent trends in the housing market, which continues to see strong momentum. “Reduced home loan rates can help the overall positive consumer sentiment. Given that housing prices have risen across the top 7 cities in the last one year, this breather is welcome and timely. As per ANAROCK Research, 2024 saw average housing prices rise by anywhere between 13-30% in the top 7 cities, with NCR recording the highest 30% jump. The average prices in top 7 cities collectively stood at approx. INR 7,080 per sq. ft. in 2023-end, while in 2024-end it increased to approx. INR 8,590 per sq. ft. – a collective increase of 21% annually. Commercial real estate, especially office spaces, can also benefit from lower borrowing costs for businesses, and lower rates also make REITs more appealing since investors look for stable returns in a falling interest rate environment. That said, the rate cut may be less effective by rising property prices if inflation remains as high as it is now. Also, it remains to be seen if banks pass on the full benefit to borrowers in a timely and seamless manner,” shared Anuj Puri, Chairman - ANAROCK Group.
