Why RBI is suddenly reducing Repo Rate and Its Impact on Real Estate
In the last few months, the RBI has cut down repo rates three times, from 6.5 to 5.5 percent. The huge reduction in repo rates shows the RBI's intention to push people to spend more money in the market for the country’s GDP and overall growth.
However, the reduction in the repo rate has both negative and positive impacts, but for property buyers, it has only positive impacts. In this article, we will understand why the RBI is suddenly cutting repo rates and its overall impact on real estate and also on other fields.
REPO rate briefing
To give you a rough idea, let’s understand the Repo Rate in easy words. For more information, you can refer to this blog: What is Repo Rate
The repo rate is the interest percentage charged by the RBI while lending money to banks. Just like we take loans from banks and the bank charges interest rates like 10–12 percent, the RBI does the same. This instance is called the Repo Rate.
So, if the RBI increases the repo rate, the banks' interest rates increase simultaneously, and if it decreases, the same gets decreased too. But don’t think you can get a loan from the RBI by looking at such a low interest rate — it is just for banks.
REPO rate Positive Impacts
When the Reserve Bank of India reduces the repo rate, it makes borrowing cheaper and boosts confidence in the economy. Homeowners benefit immediately because banks pass on the cut, making home loans and other EMIs lower, which helps families manage their budgets better. As a result, more people feel comfortable buying homes, especially first-time buyers, and this helps revive the real estate market.
The move also brings more money into the system by reducing banks' reserve needs, which encourages them to lend more to businesses and consumers . Lower interest rates for businesses mean they can invest more in expansion, hire additional staff, and produce more goods and services, which supports economic growth . In short, a repo rate cut helps families by lowering EMIs, boosts property and business spending, and supports the wider economy’s health.
Reduced Repo Rate impact on Real Estate
Due to the reduced Repo Rate, property buyers can now purchase property at a reduced interest rate if taking a loan. More buyers will infuse money into real estate, which will further push the market and boost property rates due to increased demand, as a reduced repo rate always pushes consumer demand.
However, it is unlikely that it will reduce rentals.
Let’s take an example of how the repo rate helps you with your home loan.
Repo Rate Scenarios & Savings
Repo 6.50% → Lending Rate = 8.50%
• EMI: 43,391
• Total Interest Paid: 54.13lakh
• Lifetime Interest Savings: 0 (baseline)
Repo 6.25% → 8.25%
• EMI: 42,421
• Total Interest: 51.02lakh
• Savings vs baseline: 3.11lakh over 20 years
• Monthly EMI ↓ 970
Repo 6.00% → 8.00%
• EMI: 41,471
• Total Interest: 48.15lakh
• Savings vs baseline: 5.98lakh total
• EMI ↓ additional 950
Repo 5.50% → 7.50%
• EMI: 38,765
• Total Interest: 43.03lakh
• Savings vs baseline: 11.10 lakh total
• EMI ↓ 4,626
Generally, there are only positives of a reduced repo rate in real estate. However, there are some downsides in other fields. Let’s talk about them.
Negative Impact of Reduced REPO Rate
When the RBI reduces the repo rate, it makes borrowing cheaper, which is good for loan borrowers but can cause some downsides for savers. One effect is that banks will lower their fixed deposit (FD) and savings account interest rates. This means people who rely on secure income, especially retirees, will earn less from their savings.
Another impact is that foreign investors may withdraw their money from Indian markets after a rate cut, which can weaken the rupee and upset market stability. Also, when money becomes cheap, people might borrow and spend too much, possibly leading to high inflation or asset-price bubbles in areas like real estate or stocks.
In short, while a lower repo rate helps borrowers, it reduces income for savers, may weaken the rupee, and can encourage risky investments or inflate prices in certain sectors.
Conclusion
A reduced repo rate makes loans cheaper, helping people buy homes and boosting the real estate market. It also supports overall economic growth by encouraging spending and investment. However, it can lower returns for savers, weaken the rupee, and increase the risk of inflation. So, while it’s great news for homebuyers, it comes with a few trade-offs for others.
.webp)
.webp)
.webp)
