RBI retains repo rate at 6.5%, GDP forecast for FY25 at 7.2%

August 8, 2024: In the first Reserve Bank of India’s (RBI) Monetary Policy Meeting (MPC) held after Budget 2024-25, it was decided to maintain the repo rate at 6.5%. This is the ninth consecutive time when it remains unchanged. Of the six members in the Monetary Policy Committee (MPC), four members voted in favour of maintaining the repo rate. The RBI MPC also maintained the withdrawal of accommodation stance.

The RBI also maintained status quo in the Bank Rate and the Marginal Standing Facility (MSF) at 6.75%. The Standing Deposit Facility (SDF) rate is maintained at 6.25%. The fixed reverse repo rate stands at 3.35%. The gross domestic growth (GDP) projection was upheld at 7.2% for FY25.

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 economic growth.

The RBI’s MPC meeting was held from August 6 to August 8 and led by RBI Governor Shaktikanta Das. The next RBI Monetary Policy Committee meeting is scheduled from October 7-9, 2024.

What is the impact of unchanged repo rate on the real estate market?

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

The Monetary Policy Committee’s decision to maintain the repo rates at 6.5% for the ninth consecutive time demonstrates a careful balance between a robust domestic economy and global uncertainties. The projected GDP growth for FY 2024-25 at 7.2%, along with controlled retail inflation, indicates positive signs for the Indian economy. The RBI’s intention in keeping rates unchanged is to ensure a stable interest rate environment and price stability in order to achieve sustained growth.

While central banks in countries like Canada, Europe, and England have opted for rate cuts, the US Federal Reserve has chosen to keep its policy rate unchanged in its latest meeting. Heightened concerns about a possible recession in the US, triggered by a significant increase in the unemployment rate in July, have led to speculations regarding the implementation of emergency rate cuts by the US Central Bank.

India’s residential market continues to show robust performance, seen in the Q2 2024 numbers which were the highest ever in terms of quarterly sales, underpinning the strongest H1 performance for the sector. With the sentiment likely to sustain and further strengthen over the upcoming festive season, the current status quo on the repo rate would further support this momentum in 2025.

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

The RBI’s decision to keep rates unchanged is on expected lines with an intention to keep inflation under check. While the RBI is focused on reining in inflation within its target limit, the expectation of good monsoon may prompt the apex bank to lower interest rates in the subsequent months thereby further propelling real estate sales momentum and also providing an opportunity to prospective homebuyers to enter in the market. While portraying a robust forecast for economic growth, the RBI’s all-round efforts will positively impact homebuyers’ sentiments and industry as well.

Samir Jasuja, founder and CEO, PropEquity

The Reserve Bank’s decision should be seen in the context of inflation-growth dynamics and the ongoing geopolitical crisis.
Any rate hike would have halted the real estate sales momentum which in the past few years have been on an upwards trajectory. Going forward, a reduction in the benchmark interest rate will go a long way in providing a further boost to the real estate sector, a major segment of the economy.

Saket Dalmia, President of India Sotheby’s International Realty

The RBI’s decision to maintain the policy rate aligns with expectations, given the current inflation and global economic scenario. While the near-term outlook for global growth appears positive, the medium-term outlook faces challenges due to demographic shifts, climate change, geopolitical tensions and fragmentations. Despite this, domestic economic activity remains resilient.

The MPC emphasised the need to maintain a disinflationary stance to ensure inflation aligns with targets while supporting growth, thus keeping the policy rates unchanged. Stable interest rates are beneficial for various industries, especially real estate.

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

Amidst swift changes in global economic undercurrents with a moderate view on global economic outlook, RBI has remained cautious and maintained benchmark lending rates at 6.5% for the ninth consecutive time. Inflation, despite being within 6% levels, remains above the benchmark of 4% and thus, continuation of withdrawal of accommodation.

Interestingly, stability in interest rates coupled with the recent announcement to rationalise stamp duty charges along with concessions for women homebuyers bodes well for real estate sector especially residential segment. Strong visibility in financing charges should help homebuyers and developers alike in the upcoming festive season.

Moreover, partial withdrawal of the applicability of the revised LTCG tax arising out of sale of land & buildings retrospectively provides elbowroom to effect housing sales with minimal tax outgo. This is likely to buoy investors’ & homeowners’ sentiment and thus the real estate sector at large throughout 2024.

Shrinivas Rao, FRICS, CEO, Vestian

Sticky inflation, elevated food prices and global macroeconomic uncertainty likely influenced this decision. A steady monetary policy for the past one and half years has ensured stability in the real estate sector, boosting demand for all asset classes. This upward momentum is expected to continue as the repo rate is anticipated to remain stable for a couple of more months due to rising inflation amid increasing geopolitical frictions in the Middle East.

VP Nandakumar, MD & CEO, Manappuram Finance

Today’s MPC decision to keep the repo rate unchanged at 6.5% did not come as any surprise as the rate setting committee once again reiterated its stand on containing inflation without sacrificing growth. More importantly, the apex bank has kept the GDP growth forecast for the current fiscal unchanged at 7.2% which underscores its stance of withdrawing accommodation while supporting growth. The MPC has decided to keep the repo and other policy rates unchanged in view of its inflation forecast for the current fiscal pegged at 4.5%. Though headline CPI print is moderating, the apex bank has decided to keep a strict vigil on underlying price pressures in view of the higher food prices. The key takeaway from the policy is that a rate cut may be three or four quarters away depending on evolving headline inflation print and economic growth.

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Anuradha Ramamirtham

With 16+ years of experience in various sectors, of which more than ten years in real estate, Anuradha Ramamirtham excels in tracking property trends and simplifying housing-related topics such as Rera, housing lottery, etc. Her diverse background includes roles at Times Property, Tech Target India, Indiantelevision.com and ITNation. Anuradha holds a PG Diploma degree in Journalism from KC College and has done BSc (IT) from SIES. In her leisure time, she enjoys singing and travelling.
Email: anuradha.ramamirtham@housing.com