R. Suryamurthy
In a significant move set to energize India’s housing sector, the Reserve Bank of India’s Monetary Policy Committee (MPC) has slashed the policy repo rate by a substantial 50 basis points, bringing it down to 5.50%. The decision, coupled with a cut in the Cash Reserve Ratio (CRR), reflects RBI’s confidence in the economy’s direction and its aim to stimulate lending and consumption.
This proactive monetary policy, announced under the leadership of RBI Governor Sanjay Malhotra, comes on the back of a steady decline in consumer price inflation—down to a six-year low of 3.2% in April 2025. As food prices softened for the sixth consecutive month, the MPC found room to ease policy, anticipating that inflation will remain below the 4% target throughout the year.
The CRR cut, scheduled in four tranches starting September, is expected to infuse ₹2.5 lakh crore of liquidity into the banking system. This will lower borrowing costs for banks, encourage more lending, and spur investments—especially in interest-sensitive sectors like housing and infrastructure.
For homebuyers, this is a game-changing moment. With borrowing costs coming down, monthly EMIs on home loans are set to drop significantly. Experts estimate that for a ₹50 lakh home loan over 20 years, borrowers can save nearly ₹1,960 every month—amounting to over ₹4.7 lakh in total savings over the loan’s tenure. This directly improves housing affordability, especially in high-demand cities like Mumbai, Pune, and Noida.
Industry leaders are already calling it a revival trigger. Anuj Puri of ANAROCK Group noted that reduced rates will breathe new life into affordable and mid-income housing—segments that saw shrinking sales over recent years. Affordable housing’s share of sales dropped from 38% in 2019 to just 18% in 2024, and this move could reverse that trend.
Developers are equally optimistic. Shishir Baijal of Knight Frank India believes the cumulative 100 basis points rate cut over recent months will reinvigorate demand, particularly in lower ticket-size projects. Homebuyers are expected to return in greater numbers, and developers may now re-focus on projects catering to first-time buyers and middle-income families.
The benefits go beyond monthly savings. Aman Gupta of RPS Group explained that borrowers could choose to either reduce their EMIs or keep the payments steady and shorten the loan tenure—resulting in substantial interest savings. For instance, EMI on a ₹30 lakh loan could reduce by ₹1,176 per month.
However, the impact may not be immediate for all. Loans linked to the Marginal Cost of Lending Rate (MCLR)—which still account for over a third of bank portfolios—may witness a slower transmission of the rate cut. Experts recommend that such borrowers monitor their loan terms and consider negotiating better deals or refinancing options.
On the developers’ side, the liquidity boost from the CRR cut is equally encouraging. With cheaper financing, construction activity is expected to speed up, and developers will likely have more room to launch new projects. Niranjan Hiranandani, Chairman of NAREDCO, emphasized that the liquidity infusion will help sustain development momentum and stimulate demand across both residential and commercial segments.
Investor sentiment is also expected to improve. With capital costs dropping, commercial real estate—especially in urban hubs—may see increased activity. According to Colliers India’s Vimal Nadar, homebuyer confidence is already climbing, and the rate cut brings added fuel to this sentiment. Similarly, CBRE India’s Anshuman Magazine believes the environment is now ripe for developers to ramp up activity and generate employment.
Macroeconomic fundamentals have supported the RBI’s move. India’s agricultural sector has performed robustly, with strong kharif and rabi harvests leading to a surplus of food supply—helping to keep inflation in check. The real GDP growth estimate for 2024-25 stands at a healthy 6.5%, with rural incomes improving steadily. This will further support housing demand, particularly in Tier 2 and Tier 3 cities.
While inflation remains well-managed, the MPC also acknowledged that India’s growth trajectory is still below potential due to global headwinds. The committee stressed the importance of stimulating private consumption and investment. Hence, the decision to frontload the 50 bps rate cut is not just monetary easing—it’s a strategic push to energize the broader economy.
With this move, the RBI has also shifted its monetary stance from ‘accommodative’ to ‘neutral’, signaling a cautious but data-driven approach going forward. This means the central bank is now in a wait-and-watch mode, ready to act if inflationary pressures rise again.
In summary, the RBI’s latest rate cut is a decisive signal of confidence in the country’s economic stability. It promises to unlock latent housing demand, make homeownership more affordable, support real estate development, and encourage a broader cycle of investment and job creation. For homebuyers, developers, and investors alike, this policy shift marks the beginning of a more vibrant real estate landscape in the months ahead.
