The Reserve Bank of India (RBI) has once again held its benchmark repo rate steady at 6.5%, marking the eleventh consecutive time it has chosen to maintain the status quo. While this decision aims to balance inflation control with economic growth, it leaves home loan borrowers in a state of anticipation, as significant relief in Equated Monthly Installments (EMIs) may not materialize until 2025. Here's a deep dive into the implications of this move on homebuyers and the real estate sector.
RBI Monetary Policy and Its Impact on Homebuyers
The RBI’s decision to keep the repo rate unchanged underscores its cautious approach to persistent inflationary pressures. For homebuyers, this stability translates to consistent EMIs, offering predictability in financial planning amidst an environment of escalating housing prices. However, the unchanged rate also means that borrowing costs remain relatively high, limiting affordability for many potential buyers.
Simultaneously, the RBI announced a reduction in the cash reserve ratio (CRR) from 4.5% to 4%, effectively releasing ₹1.16 lakh crore into the banking system. This move is expected to enhance banks' lending capacity, potentially leading to more favorable loan terms for borrowers. The additional liquidity could stimulate lending in sectors like housing and small businesses, indirectly easing financial constraints for consumers.
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Expert Opinions
Raoul Kapoor, Co-CEO of Andromeda Sales and Distribution Pvt Ltd, said.-avoidance of increased borrowing cost and increased credit demand because of economic growth. “"This measure is likely to reduce borrowing costs and result in enhanced credit demand and boost economic growth, he said
Anuj Puri, Chairman of ANAROCK Group, highlighted that while a rate cut would have bolstered housing sales momentum, stable home loan interest rates still provide a degree of support to demand. Given the significant rise in housing prices, particularly in the last quarter, this stability is a small but critical relief for buyers navigating a challenging market.
Rising Housing Prices and Their Effect on Sales
According to ANAROCK Research, the housing market in India’s top seven cities saw some worrying trends in Q3 2024. Average home prices jumped 23% compared to last year, going from ₹6,800 per square foot in Q3 2023 to ₹8,390 per square foot by the end of Q3 2024. However, despite this price hike, home sales dropped by 11%, and the number of new launches also fell by 19%.
This dip in sales reflects the strain high prices and borrowing costs have placed on homebuyers, particularly in the affordable housing segment. Shishir Baijal, Chairman and Managing Director of Knight Frank India, emphasized the need for a rate cut to stimulate demand among lower-income groups, where consumption has sharply moderated.
Inflationary Pressures and Economic Indicators
Ongoing inflation continues to be the main reason behind the RBI’s cautious approach. In October 2024, inflation hit a 14-month high of 6.21%, mainly due to higher food prices and global uncertainties. While core inflation remained steady, it showed signs of increasing, while fuel prices kept falling.
The central bank’s CPI-based inflation projection for FY25 was revised to 4.8% from 4.5%, reflecting the anticipated seasonal impact of food prices in Q3. The outcome of the rabi season will be crucial in determining whether these pressures ease in the coming months.
The Real Estate Sector's Hope for a Rate Cut
Real estate developers remain optimistic about potential rate cuts in 2025. A reduction in borrowing costs would not only improve housing affordability but also drive investment in the sector. Ramani Sastri, Chairman and MD of Sterling Developers, highlighted the stability brought by the current rate but urged the RBI to consider reductions to further boost economic growth.
Boman Irani, President of CREDAI, echoed similar sentiments, emphasizing the importance of policy interventions to create a conducive ecosystem for sustainable growth. Developers anticipate that the February 2025 Monetary Policy Committee (MPC) meeting could bring the much-needed stimulus to reignite momentum in the housing market.
The Path Ahead for Home Loan Borrowers
While the current stance ensures stability, home loan borrowers must brace for sustained EMIs until at least 2025. However, the possibility of future rate cuts offers a glimmer of hope. If inflationary pressures ease and economic growth stabilizes, the RBI may consider lowering the repo rate, providing relief to borrowers and reinvigorating the housing market.
As the real estate sector adapts to these challenges, homebuyers may find opportunities in the current market, particularly as developers hold back on aggressive price hikes. For those contemplating a purchase, this period of relative affordability could be an opportune moment to take the plunge.
The RBI's decision to keep the repo rate unchanged underscores its dedication to maintaining a careful balance between controlling inflation and ensuring economic stability. While this strategy provides a stable financial environment, it falls short for home loan borrowers hoping for immediate relief. As the housing market continues to evolve, stakeholders across the spectrum from developers to policymakers — must collaborate to create a resilient ecosystem that supports both affordability and growth. For now, patience is key as the sector awaits pivotal developments in 2025.
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Ans 1. The RBI kept the repo rate steady at 6.5% to manage inflation while supporting economic stability and growth.
Ans 2. While the decision stabilizes EMIs, borrowers may not see a significant reduction in their loan costs until 2025.
Ans 3. The stable repo rate keeps borrowing costs steady, but rising housing prices may continue to strain affordability for homebuyers.
Ans 4. While the current rates are stable, the reduction in CRR may indirectly lower borrowing costs, though major rate cuts are expected only in 2025.
Ans 5. The CRR is the portion of banks' deposits that must be kept with the RBI. The recent reduction in CRR boosts liquidity and may help lower lending rates.