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The Reserve Bank of India (RBI) has lowered the repo rate, its primary lending rate, by 50 basis points to a new level of 5.5% as inflation trends down to a more manageable figure. This unanimous decision was reached during the recent Monetary Policy Committee (MPC) meeting, which took place from June 4 to June 6 and was led by RBI Governor Sanjay Malhotra. Borrowers may find relief through reduced Equated Monthly Installments (EMIs) on long-term loans, which will be particularly advantageous for those looking to purchase homes. Mr. Malhotra noted that while the global economic situation remains precarious and trade forecasts have been adjusted downward, India’s economy continues to show positive momentum amid worldwide challenges.

He emphasized that the robust financial health of five key sectors underpins India’s strength. Additionally, he pointed to vast opportunities awaiting both domestic and international investors in the Indian market. "We are experiencing rapid growth currently and aim to accelerate even further," he stated. According to the RBI Governor, inflation rates have decreased significantly, and the outlook for both the short and medium term is optimistic. The forecast for food inflation also appears stable, with core inflation anticipated to remain low.

Furthermore, the RBI has revised its retail inflation estimate for this financial year to 3.7%, down from the earlier estimate of 4% made in April. Government statistics indicate that retail inflation dipped to 3.16% in April from 3.34% in March, staying within the RBI’s targeted comfort zone. The indicators of economic health continue to show resilience, as the RBI Governor highlighted a slow uptick in discretionary spending alongside robust private consumption. Industrial activity is gradually improving, and the services sector is expected to sustain its momentum, he added. Demand in rural areas remains constant, while urban markets are seeing a recovery.

The RBI has kept its Gross Domestic Product (GDP) growth forecast stable at 6.5% for the current financial year, offering quarterly growth estimates of 2.9% for April-June, 3.4% for July-September, 3.9% for October-December, and 4.4% for January-March. In addition, the central bank has cut the cash reserve ratio (CRR) by 100 basis points, which will release Rs 2.5 lakh crore in bank funds. The CRR is the percentage of total deposits banks are required to maintain in liquid form with the RBI. Mr. Malhotra assured that India remains a compelling investment destination, noting that the country's foreign exchange reserves amount to $691 billion, a figure that can easily cover over 11 months of imports. In the last MPC meeting held in April, the RBI had decreased the repo rate by 25 basis points, reducing it from 6.25% to 6%.

The cut in the repo rate is expected to lower borrowing expenses, raise confidence among homebuyers, and make housing more affordable, particularly in the mid-income bracket, according to Vimal Nadar from Colliers India. "This may lead to a boost in buyer sentiment, resulting in increased inquiries and successful transactions in the residential property market, as well as a rise in sales in major urban areas," he observed. Piyush Bothra, co-founder of Square Yards, mentioned that this reduction was an essential step for the real estate sector. "A 50-bps cut will lead to significant savings on EMIs, enhancing homebuyer affordability. It will also embolden developers to launch new projects, especially in the lower to mid-range segments," he stated.

(Video Source: Reserve Bank of India)