RBI retains repo rate at 6.5%, revises GDP forecast for FY 25 upward to 7.2%

June 7, 2024: The Reserve Bank of India (RBI) today  maintained that the repo rate continues to be at 6.5%. This is the eighth consecutive time when the repo rate remains unchanged.

The RBI also maintained status quo in the Marginal Standing Facility (MSF) and Standing Deposit Facility (SDF) rates at 6.75% and 6.25%, respectively. The fixed reverse repo rate stands at 3.35%.

Repo rate is the interest that the RBI charges from banks and financial securities for the short-term loans in India. Lower repo rate fosters economic growth and a higher repo rate can slow the economic growth.

This was decided in RBI’s Monetary Policy Committee (MPC) meeting that was started on June 5 and led by RBI Governor Shaktikanta Das. This is the first MPC meeting that took place after the results of the Lok Sabha elections were declared.

Also, the MPC revised the gross domestic growth (GDP) projection to 7.2% for FY25, up from 7% that it had estimated earlier.

Industry reactions on RBI Monetary Policy

Boman Irani, president, CREDAI

India’s robust economy continued its upward trajectory in Q4 FY 23/24 by clocking 7.8% growth, the momentum of which can also be largely put down to the strong sales volumes and infusion of supply in the Housing sector in the past few quarters. Coupled with other healthy macro-economic indicators and CPI at an 11-month low at 4.83% recorded in last April, RBI possesses a strong opportunity to provide a sustained, formidable platform to further elevate this holistic economic development across industries. Despite today’s move to maintain the repo rate at 6.5%, RBI should look towards consolidating the ongoing GDP growth in the upcoming MPC meets by cutting the repo rates for the first time since February 2023, and offer lower lending rates that would boost consumer spending even more.

Prashant Sharma, President, NAREDCO Maharashtra

We welcome the Reserve Bank of India’s decision to maintain its current policy rates amidst the backdrop of volatile food prices, ongoing geopolitical tensions, and the Federal Reserve’s extended pause on interest rates. Looking ahead, it is crucial for the RBI to continue monitoring the evolving economic landscape, particularly in the aftermath of the Lok Sabha elections and the upcoming Union Budget. The policies and fiscal measures introduced next month will play a significant role in shaping the trajectory of our economy. A balanced and forward-looking approach will be essential to support sustained growth and stability in the real estate sector and the broader economy. We remain optimistic that the RBI, with its vigilant and adaptive stance, will continue to foster an environment conducive to economic resilience and development.

Samantak Das, chief economist and head – Research and REIS, India, JLL

The strong domestic economy performance underpinned by the latest GDP numbers remains tempered by global uncertainties even as the overall macroeconomic environment shows signs of a turnaround. The estimated growth rate of 8.2% in FY2023-24, much higher than MOSPI’s second advance estimate of 7.6% are good signs for the Indian economy and more importantly retail inflation has hit an impressive 11-month low of 4.83% in April 2024, steadily approaching RBI’s target of 4%.

The better-than-expected growth has afforded the RBI leeway to keep the repo rate unchanged at 6.5% for the eighth consecutive time, indicating a prudent and measured approach towards ensuring that inflation aligns durably and sustainably to the target. This strategic move ensures a stable and predictable interest rate environment, a transformative factor for both homebuyers and developers. The recent move of the European Central Bank to cut rates by 25 bps and indications of an impending Fed Rate cut are also leading indicators of how the RBI may look towards its own interest rate regime, though domestic factors will still hold greater sway on the movement and timing of future rate cuts.

With controlled inflation paving the way for future rate cuts, 2024 holds the promise of heightened affordability levels within the residential real estate sector, second only to the peak levels of 2021. This transformation is expected to fuel the growth cycle within the sector and act as a catalyst, uplifting overall market sentiment. Anticipating an upsurge in demand, particularly in the mid-tier and high-income segments, the Indian housing market is set to witness skyrocketing growth with residential sales in India’s top seven markets predicted to further show a bump of 15%-20% over the historic high of 2023.

Ashish Modani, senior vice president & co-group head -corporate ratings, ICRA

ICRA expects the new government will continue to maintain its thrust on the Infrastructure sector, with continued strong outlay towards railways, roads and water (drinking as well as sewage). There could be some re-prioritisation between various infra sub-segments to accommodate all the stakeholders; however, the capital outlay towards infrastructure is expected to sustain the healthy growth momentum, given the overall GDP multiplier effect of infrastructure spending and consequent job creations in the unskilled and semi-skilled segment.

Vimal Nadar, senior director & head of research, Colliers India

In the first MPC meeting after the recently concluded general elections, the RBI has maintained status quo. The repo rate remains at 6.5% and withdrawal of accommodation continues. This decision comes against the backdrop of a concerted effort to contain inflation close to 4% on a durable basis. Furthermore, an upward revision of FY 2025 GDP growth rate projection by 20 bps to 7.2% will fuel business optimism across sectors including real estate.

A stable financing environment will continue to benefit homebuyers and developers in both residential and commercial real estate. As central banks across the world ponder over rate cuts, the timing and pace of such reductions in India will remain a key monitorable and should provide further boost to residential activity in the ongoing fiscal year. Developers & institutional investors in the real estate sector will meanwhile continue to expect continuation of structural reforms and policy support from the incoming Central government.

Ashwin Chadha, CEO, India Sotheby’s International Realty

As expected, the MPC has decided to keep the repo rate unchanged at 6.5%. This decision aligns with the MPC’s calibrated measures to tackle persistent inflation. The RBI has successfully maintained the resilience of the Indian economy, contributing to sustained growth momentum even amidst a challenging global environment.

The good news is that CPI inflation continues to soften, and the GDP growth rate is projected to remain above 7% for all quarters of FY2024-25. Additionally, the monsoon is expected to be favorable, reducing potential risks to the economy.

Given these positive indicators, we anticipate optimistic sentiments to continue, also the upward trend in housing demand, particularly in the high-end and luxury segments, will persist for the foreseeable future.

Pradeep Aggarwal, founder & chairman, Signature Global (India)

The RBI held rates steady for the eighth time in a row, likely due to high food inflation despite overall CPI falling within their target range. Strong GDP growth in FY24 may have also influenced this decision. However, economists anticipate rate cuts of 25-50 basis points in the second half of the fiscal year if inflation keeps declining. Lower interest rates could further boost the real estate sector, which is already experiencing strong market demand from end-users. We expect the robust demand trend to stay healthy over the next few years, particularly in cities like Gurugram which are witnessing robust infrastructure development.

Subhash Goel, MD, Goel Ganga Developments

This decision shows that the RBI is alert to inflation threats – the key reason why it has kept the repo rate constant – despite portraying an upbeat economic growth picture. While this policy stance makes much macroeconomic sense, it also presents efficacious challenges for prospective homeowners. As the cost of borrowing offset remained high, the affluence of attaining homeownership continues to remain a mirage to several, especially within the affordable housing space. As far as the monetary policy is concerned the biggest wait goes to the fiscal policy, similarly the home buyers wait for the ideal interest rates and the cheaper prices of the houses in the coming months.

LC Mittal, Director, Motia Group

The RBI’s strategy to wait and watch before initiating further rate cuts is well-appreciated, especially in the light of the eagerly awaited union budget that is expected to shed light on fiscal policy. To home buyers, this cautious stance means a higher borrowing cost period that continues to undermine the constrained demand for property in the real estate market. As much as the industry expected the RBI to cut the rates to boost housing consumption, the latter’s priority lies in curbing inflation and maintaining financial stability. Consumers that buy homes now experience the dilemma of either delaying their decision on their mortgages or handling more expensive EMIs.