RBI cuts Repo Rate by 35 bps; home loan EMIs likely to reduce

August 7, 2019

As much needed respite to a dwindling national economy, the Reserve Bank of India (RBI) has reduced the repo rate by 35 basis points. With the Monetary Policy Committee (MPC) bringing about the fourth cut this year, the repo rate has come down to 5.4 percent which is said to be the lowest in nine years.

The Reserve Bank of India (RBI) has slashed the repo rate for the fourth time this year. The move is touted to be a shot in the arm to a national economy going through a slump. The RBI, led by governor Shaktikanta Das, has lowered the repo rate by 35 basis points, bringing it to 5.4 percent, the lowest in the last nine years.

This rate cut has come as a pleasant surprise as most of the leading economists expected a 25 bps reduction. This move by the rate-setting authority – Monetary Policy Committee (MPC), has come to rescue the national economy from a slowdown, low inflation, international trade disputes and geopolitical tensions.

The Marginal Standing Facility (MSF), the rate at which banks can borrow from the RBI, has been adjusted to 5.65 percent. The RBI has also brought down the GDP growth forecast for the 2019-20 to 6.9 percent instead of the earlier prediction of seven percent.

The reduction in the repo rate has brought a sigh of relief for borrowers, as there may be a higher transmission of reduction in interest rates than previously expected. At 3.18 percent in June, the national retail inflation rate has stayed within the RBI’s medium-term target of 4 percent. This is most likely expected to benefit the real estate industry as housing finance institutions may now be encouraged to pass on the benefit to home loan borrowers.

Expressing delight, Parth Mehta, Managing Director, Paradigm Realty, avers, “The 35 BPS rate cut is a great news as it is more than leading economists’ expectation of 25 bps. This shall help faster transmission of rate cuts as banks are already witnessing excess liquidity, and now will be compelled to deploy good assets for which rate cut benefits need to be passed on in the form of consumption finance loans at lower rates linked to automobile loans, home loans, personal loans etc. The credit growth is very important for inducing investment cycles to return back. With surplus liquidity and repo rate almost 110 bps lower than the start of 2019 at 5.4 percent, there should be a transmission of aggressive rate cuts by banks. This will spur credit growth propelling consumer spending, bringing healthier economic growth.”

The Consumer Price Index (CPI) inflation for the April-June quarter of 2020 is estimated to be 3.6 percent. The RBI governor said that the Committee is aimed at addressing the need for economic growth while at the same time keeping with the CPI inflation mandate.

“We welcome the RBI rate cut, since easing the interest rate will help revive the investment cycle, especially in the real estate sector, which is what the government wants under its “Housing for All” policy. As the Indian economy needs liquidity to fuel the growth engine, the recent move by RBI is expected to lift industry sentiments and boost demand for the sector through greater consumption demand as well as private investments. All these developments will not only culminate in more launches in the real estate sector, but more importantly timely project completions as well,” says Avneesh Sood, Director, Eros Group.

The national lobby of leading economists expects great things for the national GDP as well as individual benefits for borrowers. The enhanced liquidity from the rate cut is expected to stabilise the flow of credit to non-banking financial companies(NBFC), and improve practices in agricultural loans, in turn improving the national economy.

Here is what a few other real estate stalwarts are saying about the move –

Anshuman Magazine, Chairman & CEO, India, South East Asia, Middle East & Africa, CBRE

In a scenario where there is pressure on GDP growth, the repo rate cut will spur investment and boost consumption activity in the economy. We believe that this announcement might result in a further reduction in home loan rates and will provide an impetus to the government’s initiative of affordable housing. The rate cut coupled with several existing incentives for borrowers will impact home loan rates positively and enhance consumer sentiment.

Surendra Hiranandani, Chairman and Managing Director, House of Hiranandani

The real estate sector has been looking forward to such initiatives to boost sales. It will support growth and ease the liquidity crunch in the economy. We hope that the current rate cut would translate into lower EMIs and help soften home loan rates and also boost sales. It will help to ease the pressure off the market by attracting buyers to invest in the real estate sector. Real estate is one of the few sectors which has the potential to kick start a sluggish economy. The forthcoming festive season will further boost the real estate sector. Today’s rate cut of 35 bps is yet another initiative that is propelling the real estate sector on a new growth trajectory.

Rohit Poddar, Managing Director, Poddar Housing and Development Ltd

This is a welcome move by the RBI as growth has totally stagnated and in fact, there is deflation in several sectors. The RBI has cut the rate in the backdrop of evolving growth-inflation dynamics with the objective to fill the output growth gaps. Banks’ lending to registered NBFCs for housing up to Rs 20 lakh per borrower is positive news for the real estate sector. Transmission of the rate cuts to borrowers is important  and additional interventions will also be required to try and provide a boost to the economy.

Shishir Baijal, Chairman and Managing Director, Knight Frank India
In light of the present economic distress in the country, we welcome the move to bring down REPO rate by 35 bps, however, we would have really expected to see a more substantial cut as it is the need of the hour for its effective transmission to end-users. While it is the fourth consecutive rate cut this year and is in line with RBI’s recent shift to an accommodative monetary policy stance, it may not be sufficient to give the required impetus to the stalling consumption numbers. Of the 75 bps rate cuts before the latest one, only up to 35 bps have been seemingly transmitted to end-users and with this backdrop, another similar rate revision is not expected to trickle down much.
Ravindra Sudhalkar, ED & CEO, Reliance Home Finance
The Reserve Bank of India’s decision to cut rates by 35 basis point is a positive decision. The move to allow banks to lend to priority sectors, including to the housing sector with an increased limit of up to Rs 20 lakh, through the NBFC will kickstart credit flow, especially to the affordable housing sector. For the consumers to feel the benefit of lower rates, the RBI will now need to step in for accelerating the transmission of the rate cut.
Bijay Agarwal, Managing Director, Salarpuria Sattva group

When banks are limited by their cost of borrowing, they will be able to lower their respective marginal cost of funds based lending rate (MCLR), which directly impacts loans. In real estate, a reduction in the cost of funds means the same can be passed on to customers directly. This will encourage customers to buy properties due to reduced interest on home loans, hence increasing the purchasing power of the common man.

José Braganza, Joint MD, B&F Ventures (P) Ltd

The fourth consecutive rate cut of the year by 35 bps to 5.4% along with the possibility of the cut in lending rates will bring confidence in the market of tier II cities if the benefit is transmitted by the banks to the end consumer. A massive advantage could be observed especially in the tier II and III cities as the markets in these cities stand to flourish from the increased liquidity. This move could also boost the affordable housing segment and would ease the burden of first time home buyers in the metro as well as tier-II cities. In coming months, it can emphasize the recent smoothness in the momentum of the country’s domestic economy.

Pankaj Kumar Jain, Managing Director, KW Group
For the real estate sector mired in a chronic cycle of slow growth, the RBI’s decision to cut repo rate by 35bps is truly a welcome move that may quickly result in lower EMIs for homebuyers. Besides spreading positivity in the industry such an excellent move will surely bring some momentum in the beleaguered housing markets across the country.
Nabil Patel, Director, DB Realty
The repo rate cut by 35 bps to 5.4 percent comes as an optimistic step for the Indian economy as a whole. Being the fourth consistent rate cut of the year, this will play a significant role in bringing down the home loan rates and help ease the liquidity crunch in the sector. We anticipate that this announcement will encourage people to buy their dream homes.
Rohit Kharche, Director, The Baya Company 
The cut in repo rate announced by the RBI is a great first step towards regaining momentum across all sectors, especially the real estate sector. By passing on the benefit to home buyers and corporate borrowers, banks now have the opportunity to revive growth and provide a boost to the real estate industry.
Samyak Jain, Director, Siddha Group
The RBI’s decision to cut the repo rate by 35 bps to 5.4% is a progressive step taken for the real estate sector. This announcement is anticipated to help reduce the home loan rates which will further encourage people to buy homes. We hope to see a significant rise in investments in the market with an uplift in sales of under constructed homes and stimulation in the affordable luxury segment. The RBI has once again played its part with the fourth rate cut this year and we hope to see the banks pass on the benefits to the homebuyers.

Manoj Paliwal, CFO, Omkar Realtors & Developers

As the residential sector is already under distress with slower sales, RBI’s decision to bring down the lending rate by 35 basis points is resultant ought of concern about real estate sector growth, its performance, and outlook, and the urgency to take measures to revive growth in the sector. The move will reduce the outgo in terms of EMI for the borrowers benefitting the homebuyers, which will surely boost confidence in the segment bringing in the much-awaited momentum in sales.