The Reserve Bank of India-led Monetary Policy Committee (MPC), headed by Governor Shaktikanta Das, is set to announce its interest rate decision on October 9 at 10 am.
While most analysts predict no change in rates, a surprise rate cut could bring cheer for home buyers, potentially reducing EMIs on housing loans.
RBI’s decision will impact various sectors, especially housing, where home loans dominate purchases, ANAROCK Group Chairman, Anuj Puri, told ET Online. “A cut in the repo rate would result in lower interest rates on home loans, making EMIs more manageable for borrowers,” Puri said.
Puri noted that any reduction in interest rates could boost market sentiment and attract investors back into real estate, a sector that saw renewed interest post-pandemic due to rising demand and prices. However, with home prices peaking, many investors are currently cautious. More favorable lending rates could revive this market.
Data from ANAROCK Research highlights a 46% rise in residential property prices across the top seven cities since 2021. A potential rate cut would improve affordability and could lead to increased sales during the upcoming festive season. Puri added that this would benefit developers by improving cash flow and reducing borrowing costs.
Subha Sri Narayanan, Director at CRISIL Ratings, echoed similar views, stating that most housing finance companies offer floating interest rates. Any reduction in the repo rate, which currently stands at 6.5% would eventually lower the benchmark lending rates for these institutions, though the effects may take time to manifest.
Interest rates on home loans have surged since the RBI hiked the repo rate by 2.5% between May 2022 and February 2023. Borrowers are now eagerly awaiting a reversal in the rate cycle to ease their EMIs.
Despite expectations for no rate change, the addition of new members to the MPC with those of different views have increased the possibility of unexpected moves in the upcoming meeting.
Economic indicators suggest a cooling of India’s growth momentum. The 6.7% growth rate for the first quarter of FY2025 was slightly below the RBI’s 7% projection. A slowdown in vehicle sales, cement demand, and GST collections points to weakening domestic demand. Despite these concerns, the central bank remains cautious due to inflation risks.
Although inflation has eased from its peak, the RBI is still wary of its durability, especially with external factors like rising geopolitical tensions and potential oil price hikes. An ET poll showed that 80% of economists expect the repo rate to remain at 6.5%, marking the tenth consecutive meeting with no rate cut.
Global factors also play a role in the RBI’s decision-making process. While the U.S. Federal Reserve has started cutting rates, RBI is likely to focus on domestic conditions. However, a report from Nuvama suggests that the Fed’s policy could still influence RBI’s actions in the coming months.
Rumki Majumdar, an economist at Deloitte India, noted that the RBI is unlikely to cut rates until inflation is consistently under control. “RBI would prefer to wait and watch the inflationary pressures that emanate from a myriad of risks and how the markets react to the US policy rate cuts,” Majumdar said.
As the October meeting approaches, the RBI is expected to keep its repo rate unchanged maintaining a cautious stance. However, a shift to a neutral monetary stance could signal potential rate cuts later in the year, depending on the evolving global and domestic economic landscape.
