In an expected move, the Reserve Bank of India (RBI) on Wednesday kept key interest rates unchanged for the third time in a row, as it considered the impact of unstable energy prices and supply disruptions caused by the prolonged West Asia crisis.
Announcing the third bi-monthly monetary policy of the current financial year, RBI Governor Sanjay Malhotra said the Monetary Policy Committee (MPC) unanimously decided to maintain the short-term lending rate, or repo rate, at 5.25 per cent with a neutral stance.
The Standing Deposit Facility (SDF) rate also remained unchanged at 5 per cent, while the Marginal Standing Facility (MSF) rate and the bank rate stood at 5.5 per cent.
Malhotra said trade concerns continue to persist as the US has imposed new tariffs. In view of the West Asia crisis, he said crude oil prices and financial markets remain unstable.
The interest rate pause comes as Consumer Price Index (CPI)-based headline retail inflation crossed the RBI’s medium-term target of 4 per cent, rising to 4.38 per cent in June.
What is repo rate?
The interest rate at which commercial banks borrow funds from the central bank against government assets as collateral is referred to as the repo rate, also known as the repurchase agreement or repurchasing option.
The process involves a short-term loan in which the borrower (usually a commercial bank) sells securities to the lender (the central bank) with a commitment to buy them back at a specified future date, generally the following day, at a marginally higher price.
The repo rate is an important tool used by central banks to manage the economy and safeguard financial stability. It serves as a benchmark for other interest rates across the economy and is the rate at which banks borrow money from the central bank.
What industry leaders say
Dharmendra Raichura, VP & Head of Finance, Ashar Group, said the RBI’s decision to maintain the repo rate at 5.25 per cent reinforces confidence in an already resilient residential real estate market by providing certainty around borrowing costs and creating a stable environment for homebuying decisions.
“It further supports homebuyer sentiment, financing decisions, and healthy residential demand over the next 6-12 months,” he said.
For homebuyers, predictable EMIs improve purchase planning and affordability, while developers benefit from greater visibility in project execution, financing and long-term capital allocation, he added.
Parveen Jain, President, NAREDCO, said stability in interest rates would have a positive impact on homebuyers as well as developers and help maintain the momentum in housing demand.
He added that the decision would also give a boost to construction activity, MSMEs, building material industries and lakhs of workers associated with it.
The decision to keep the repo rate unchanged would also have a positive impact on festive season sales of under-construction properties, Jain said.
