RBI rate cut eases path for borrowers, homebuyers

In a surprise move that surpassed market expectations, the Reserve Bank of India (RBI) has slashed the repo rate by 50 basis points to 5.5%, marking the second consecutive cut this year. The announcement, made by RBI Governor Sanjay Malhotra following the Monetary Policy Committee (MPC) meeting, signals a clear pivot toward supporting growth amid easing inflation.

The repo rate, at which the central bank lends to commercial banks, has now been cut by a cumulative 100 basis points since February. This latest reduction is expected to lower borrowing costs across the board, particularly benefitting homebuyers and retail borrowers through reduced EMIs.

Alongside the rate cut, the RBI also reduced the Cash Reserve Ratio (CRR) by 100 basis points, releasing ₹2.5 lakh crore into the banking system. The infusion is aimed at boosting liquidity and encouraging banks to increase lending, a move welcomed by economists as a necessary stimulus for domestic demand.

Governor Malhotra tempered expectations of further easing, warning that policy space is now constrained. Reflecting this, the central bank shifted its stance from 'accommodative' to 'neutral', signalling a more cautious approach in the months ahead.

The policy changes are expected to ripple across the financial system, potentially bringing home loan interest rates below 7.75%, a welcome development for prospective buyers and a boost to the real estate sector.