The Reserve Bank of India (RBI) has slashed the repo rate by 25 basis points (bps), bringing it down to 6 per cent from 6.25 per cent. This is the second consecutive rate cut by the central bank this year — a decision welcomed by developers, economists, and homebuyers alike.
What the Rate Cut means — on paper
Theoretically, the 25 bps repo rate cut, if fully transmitted by banks, could significantly ease the burden for home loan borrowers. For instance, a borrower with a Rs 50 lakh home loan over a 20-year tenure at a 9 per cent interest rate currently pays an EMI of Rs 44,986. A reduction of 50 bps in the interest rate could bring this down to Rs 43,391, resulting in a monthly saving of Rs 1,595 — translating into Rs 19,140 annually and over Rs 3.8 lakh across the loan tenure.
While HDFC Bank and Axis Bank have confirmed they passed on the previous 25-bps benefit to existing customers, most others are yet to follow. According to RBI norms, banks are required to review interest rates on floating loans every quarter, but the actual reduction — if any — depends on the discretion of the lender.
The RBI’s move could be a boon for the affordable housing sector, which is currently facing low supply and slowing demand. Developers and real estate observers believe that lower interest rates could be the key to reviving buyer sentiment, especially among first-time homeowners.
“This rate cut is timely. It not only makes borrowing cheaper but gives a much-needed sentiment boost to both homebuyers and developers. Affordable housing, in particular, stands to gain, as it is highly interest rate-sensitive,” said G Hari Babu, National President of the National Real Estate Development Council (NAREDCO).
Boman Irani, MD of Rustomjee Group and President of CREDAI, added, “With CPI inflation projected to moderate to 4.5 per cent, this rate cut reinforces RBI’s pro-growth stance and comes as a boost for the housing sector. Borrowing will become more affordable, especially in the mid-income and affordable segments.”
Even as interest rates face downward pressure, property prices are rising steadily. According to ANAROCK Research, housing prices in India’s top seven cities increased between 10-34 per cent year-on-year in Q1 2025. The National Capital Region (NCR) led with a 34 per cent surge, followed by Bengaluru with a 20 per cent increase. The average housing price across these cities has jumped from Rs 7,550 per sq. ft. in Q1 2024 to Rs 8,835 per sq. ft. in Q1 2025 — a collective annual hike of 17 per cent.
For those with floating-rate home loans — especially those linked to the repo rate — there may still be room for negotiation or strategic refinancing. All retail floating-rate loans sanctioned after October 1, 2019, are benchmarked to an external rate, primarily the repo rate.
Besides homebuyers, developers too stand to gain from cheaper credit lines. A lower repo rate helps reduce the cost of funds for real estate companies — a major expense given the capital-intensive nature of the industry.
Mohit Malhotra, co-founder and CEO of NeoLiv, a real estate investment and development platform, said, “This move by the RBI is a strong signal for institutional investors and new-age fund managers. It reassures us about macroeconomic stability and encourages further capital deployment in the sector.”
The RBI’s shift from a “neutral” to an “accommodative” policy stance also suggests a change in its monetary philosophy — one aimed at sustaining domestic demand, stimulating investment, and insulating the economy from global shocks like the US tariff impositions.
Additionally, RBI’s plans to issue comprehensive norms for gold loans indicate a broader effort to standardise and strengthen retail lending across multiple verticals.
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