February 07, 2025
The Reserve Bank of India (RBI) has lowered the repo rate by 25 basis points (bps) to 6.25 per cent, marking the first cut in nearly five years. The announcement came during the February 2025 Monetary Policy Committee (MPC) meeting led by RBI Governor Sanjay Malhotra. This decision follows a prolonged period of unchanged rates since February 2023, when the repo rate stood at 6.5 per cent.
The move aligns with recent economic measures, including income tax cuts, aimed at boosting liquidity and encouraging consumer spending.
Colliers, a leading real estate consultancy, highlights that the budget introduces several measures that will drive the transformation of cities into economic hubs. The Rs 1 lakh crore Urban Challenge Fund has been introduced to finance urban growth, covering 25 per cent of the cost of bankable projects, with an initial allocation of Rs 10,000 crore for 2025-26. Additionally, each infrastructure-related ministry will develop a three-year plan under the Public-Private Partnership (PPP) model, backed by Rs 1.5 lakh crore in interest-free loans. The expansion of the UDAN scheme will enhance regional connectivity with 120 new destinations, further boosting real estate in Tier II and III cities.
The reduction in the repo rate is expected to lower equated monthly instalments (EMIs) for borrowers. Banks are likely to pass on the benefits through reduced lending rates, making home, auto, and personal loans more affordable.
Governor Sanjay Malhotra highlighted that inflation has moderated due to a favourable food price outlook, aligning with the RBI’s monetary policy framework. The GDP growth projection for FY26 stands at 6.7 per cent, with quarterly estimates as follows:
The RBI’s decision also follows a previous 50-bps reduction in the Cash Reserve Ratio (CRR), injecting liquidity into the banking system. Industry experts anticipate further rate cuts in upcoming MPC meetings to support demand, particularly in the housing sector.
Industry leaders believe the rate cut will provide a much-needed boost to the real estate sector, especially in the mid-income and affordable housing segments. With reduced lending rates, homebuyers can expect lower EMIs, making homeownership more accessible. Developers and investors also anticipate an increase in demand, strengthening market confidence.
Following the announcement, Indian equity markets experienced modest gains. The Nifty 50 index rose by 0.2 per cent to 23,651, while the BSE Sensex increased by 0.3 per cent to 78,270.5. Interest rate-sensitive sectors, such as financials, autos, and realty, also saw positive movements.
The rate cut comes in response to decelerating economic growth and easing inflation. The government projects a 6.4 per cent growth rate for the fiscal year ending in March, hindered by weak manufacturing and slower corporate investments. Inflation decreased to 5.22 per cent in December and is expected to decline further, providing the RBI with flexibility for monetary easing.
The RBI’s decision to cut the repo rate signals a shift towards a more accommodative policy stance. As inflation remains slightly above the four per cent target, further rate adjustments could be on the horizon. Borrowers should monitor their banks for revised interest rates and assess refinancing opportunities to maximise savings.
Source: timesproperty.com
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