By: Shishir Baijal, Chairman and Managing Director, Knight Frank India,
“Given the prevailing benign inflation environment and the moderate GDP growth of 6.5% recorded in FY 2025, we expect the RBI to proceed with a 25-bps repo rate cut in the upcoming MPC review. The case for a rate cut is further supported by the revival in the liquidity conditions to a surplus of INR 3.6 trillion, which enhances the effectiveness of monetary transmission. Additionally, the softening of G-sec yields reflects bond market confidence in the RBI’s inflation and liquidity management and strengthens the rationale for easing rates.
With the anticipated rate cut, the cumulative reduction in the policy rate in this cycle would be 75 bps. However, the focus must now shift to the pace and breadth of transmission. While some commercial banks have begun to lower their MCLR and base rates, the adjustments have been modest. With liquidity conditions stabilizing, there is now greater scope for commercial banks to accelerate the pass-through of policy easing to borrowers. This will be key to spurring consumer demand and private investment, ultimately supporting economic growth.
Transmission of rate cuts into lower borrowing costs is vital to sustain residential real estate demand — particularly in the affordable housing segment, which is acutely sensitive to interest rate movements. With EMIs constituting a significant share of monthly income in this category, even a modest reduction in lending rates can influence buying decisions. Thus, the RBI’s rate cut, coupled with ample liquidity, could provide the necessary momentum to support this price-sensitive demand segment.”
