RBI maintains Repo Rate at 6.5%

Highlights banking sector challenges amid food inflation

The Reserve Bank of India (RBI) has decided to keep the repo rate steady at 6.5% for the ninth consecutive meeting, attributing the decision to persistent food inflation concerns. This marks a continuation of the rate hike cycle that began in May 2022, which included six consecutive increases totalling 250 basis points before pausing in April 2023.

During the third bi-monthly monetary policy review for the fiscal year, RBI Governor Shaktikanta Das emphasized the Monetary Policy Committee’s (MPC) vigilance towards ongoing food inflation pressures. The RBI also maintained its growth projection at 7.2% for the current financial year.

Governor Das highlighted several critical issues facing the financial sector

Firstly, banks are facing funding challenges as deposits lag loan growth, prompting reliance on short-term non-retail deposits and other instruments, which may lead to structural liquidity issues. Das underscored the importance of banks focusing on mobilizing household financial savings.

Secondly, the Governor stressed the need for careful monitoring of retail loans used for consumption, noting that some segments of personal loans continue to exhibit high growth despite regulatory measures aimed at moderating credit growth in certain sectors.

Thirdly, rapid growth in housing loans has led to concerns over compliance with regulatory norms. Das pointed out that some banks and NBFCs are offering top-up loans without adhering to guidelines regarding loan-to-value ratios, risk weights, and the end use of funds, potentially diverting loan funds to speculative activities or unproductive sectors.

Lastly, with increasing reliance on big tech and third-party technology solutions, Das emphasized the necessity of establishing robust risk management frameworks for IT, cybersecurity, and outsourcing arrangements to maintain operational resilience.

In addition to these points, the RBI announced an increase in the UPI limit for tax payment transactions, raising it from Rs 1 lakh to Rs 5 lakh per transaction, to facilitate higher-value tax-related payments.

Comments from the industry leaders

Dr. Niranjan Hiranandani, Chairman, NAREDCO and Hiranandani Group

“The RBI’s decision to maintain the repo rate unchanged is a stabilizing force in the current volatile global economic scenario. With the U.S. recession threats hovering, the Bangladesh crisis impacting regional capital flows, and broader global economic uncertainties, steady home loan interest rates offer a semblance of predictability. However, stakeholders must closely monitor these geopolitical undercurrents and macroeconomic indicators to adapt their strategies effectively.

From a real estate standpoint, lowering the repo rate could have helped revive affordable housing, which has been negatively affected by higher interest rates. However, NRI investors, particularly, find this predictability crucial amidst fluctuating foreign exchange rates and global undercurrents. As the market remains steady, it provides fertile ground for both long-term and short-term real estate investments, but vigilance towards inflation trends, fiscal policies, and global economic developments remains imperative.”

Pritam Chivukula, Vice President, CREDAI-MCHI and Co-Founder & Director, Tridhaatu Realty

“We welcome the RBI’s decision to keep the repo rate at 6.5%, reflecting a cautious and balanced approach. The real estate sector, especially in cities like Mumbai, has seen steady revival, and rate stability will sustain this momentum. Favourable lending rates benefit homebuyers, encouraging housing market investments. We urge the government to implement further measures to enhance liquidity and long-term sector stability. Boosting consumer sentiment is key to driving growth in real estate and related industries.”

Rajeev Ranjan, Co-Founder & CEO, The Mentors Real Estate Advisory Pvt Ltd

“The MPC’s decision to keep the repo rate unchanged at 6.5% is a balanced approach reflecting the current economic landscape. Stability in interest rates is crucial for maintaining buyer confidence and steady demand, especially in housing. The unchanged rate offers a favourable borrowing environment and signals the RBI’s intent to monitor inflation closely without disrupting growth. This stance should sustain the real estate market’s momentum, encouraging homebuyers to take advantage of existing conditions.”

Shraddha Kedia-Agarwal, Director, Transcon Developers

“We commend the RBI’s decision to maintain the repo rate at 6.5%. The real estate sector has shown resilience amidst fluctuating economic conditions, and stable interest rates are positive for developers and homebuyers. This decision will help sustain housing market momentum, encouraging potential buyers to invest confidently in their dream homes. We remain optimistic that steady rates will continue to bolster the real estate sector and support overall economic recovery.”

Rohan Khatau, Director, CCI Projects

“The RBI’s decision to maintain the policy rate is prudent, helping control inflationary trends. Focusing on controlling inflation to support growth is commendable and fosters a favourable environment for the real estate sector, enabling growth and stability. We are optimistic that these measures will enhance consumer confidence and encourage home ownership, laying a strong foundation for future progress.”