Steady repo rate, CRR cut to provide relief to borrowers, fuel credit growth
The steady repo rate is also anticipated to bolster the real estate sector by enhancing affordability for homebuyers and sustaining demand across various housing segments.
Prospective homebuyers can anticipate stable rates in the near future. (Image: Freepik)
The Reserve Bank of India in its MPC meet on December 6 maintained the repo rate at its current level of 6.5% for the 11th consecutive time since February 2023. Nevertheless, a positive development was the reduction of the Cash Reserve Ratio (CRR) from 4.5% to 4%, which demonstrates the RBI’s prudent strategy in navigating mixed economic indicators.
Industry experts said the RBI decision to maintain the repo rate underscores its commitment to controlling inflation while ensuring economic stability amid a complex global landscape. This decision coincides with a reduction in inflationary pressures, supported by declining crude oil prices and a consistent food supply chain.
Nevertheless, ongoing global economic uncertainties and geopolitical tensions have prompted the Monetary Policy Committee (MPC) to adopt a more prudent approach. The RBI has reiterated its medium-term inflation target of 4%, while also emphasizing the importance of economic growth.
“Regarding the implications for home loans, the decision to keep the rate unchanged offers relief to borrowers with floating rate home loans, as it prevents any further increases in their equated monthly installments (EMIs), which had previously surged due to earlier rate hikes. Additionally, borrowers with fixed-rate loans will benefit from the stability of their locked-in rates,” said Atul Monga, CEO & Co-Founder, BASIC Home Loan.
Prospective homebuyers can anticipate stable rates in the near future. The steady repo rate is also anticipated to bolster the real estate sector by enhancing affordability for homebuyers and sustaining demand across various housing segments.
“Overall, this decision is likely to enhance consumer and investor confidence while effectively managing inflation. Looking forward, should inflation continue to decline, there may be potential for rate reductions in the upcoming quarters,” added Monga.
Despite inflation remaining above the desired threshold, the RBI continues to emphasize the importance of price stability in conjunction with economic growth. While the repo rate—the interest rate at which the RBI lends to commercial banks—has not changed, the decision to lower the CRR is a favorable action that benefits borrowers. The CRR indicates the proportion of a bank’s total deposits that must be held as reserves in cash with the RBI, thereby ensuring liquidity and stability within the banking sector.
“A higher CRR restricts the amount of money available for banks to lend, leading to decreased liquidity, whereas a lower CRR enhances lending capacity and increases liquidity. By decreasing the CRR from 4.5% to 4%, the RBI has released additional funds into the banking system, allowing banks to extend more loans. This adjustment is anticipated to lead to reduced lending rates, making home and personal loans more accessible for borrowers. Lower borrowing costs can alleviate Equated Monthly Installments (EMIs), promote credit utilization, and invigorate sectors such as housing and small enterprises, thereby fostering economic growth while alleviating financial pressures on borrowers,” said Raoul Kapoor, Co-CEO, Andromeda Sales and Distribution Pvt Ltd.
Aman Sarin, Director & Chief Executive Officer, Anant Raj Limited, said, “The monetary policy announced by the Reserve Bank of India represents a significant advancement in fostering a bullish sentiment across all sectors of the Indian markets. While the central bank has opted to maintain the current repo rate, it has chosen to lower the Cash Reserve Ratio (CRR) that banks are mandated to hold. This adjustment will liberate additional capital for banks, facilitating enhanced lending capabilities for both retail and institutional clients. A reduction in the CRR also diminishes the operational costs for banks, which may result in lower interest rates.”
The housing market, especially within the luxury segment, continues to demonstrate robust demand, and this CRR reduction is anticipated to further accelerate this trend. With an expanding economy and an increasing inclination towards luxury real estate developments, the demand in this sector is expected to remain strong.
