RBI Repo Rate Cut: Positive Impact on Real Estate and Market Sentiment

The Reserve Bank of India's (RBI) six-member Monetary Policy Committee (MPC) unanimously decided to cut the repo rate by 25 basis points (bps) to 5% on December 5. This is the lowest level in three years. The MPC, led by Governor Sanjay Malhotra, also maintained the neutral monetary policy stance. With the latest rate cut, the total reduction for 2025 now stands at 100 bps (1.25%).

Earlier this year, the MPC announced a 25 bps rate cut in February and April, and a 50 bps rate cut in June, frontloading a 1% (100 bps) cut. However, the RBI then paused the cuts, keeping the rate unchanged at 5.5% in both August and October MPC meetings.

Governor Malhotra, in his address on Friday, stated that the Indian economy is currently in a 'Goldilocks period', characterized by high economic growth and low inflation. 'Real GDP growth accelerated to 8.2% in Q2, buoyed by strong spending during the festive season, which was further facilitated by the rationalization of the goods and services tax (GST) rates. Inflation at a benign 2.2% and growth at 8.0% in H1:2025-26 present a rare Goldilocks period,' the governor said.

Experts believe that the latest rate cut reflects a shift in the RBI’s monetary policy, and the markets are expected to react positively, as there were already expectations for a cut in December. 'Markets are likely to read this as supportive rather than surprising since expectations for a cut had already strengthened after the recent CPI prints softened. Bond yields should move lower with the 10-year moving toward the 6.8 to 7% range as investors price in the start of an easing path,' Sonam Srivastava, Founder and Fund Manager at Wright Research PMS, commented on the RBI MPC meeting.

The rate cut is expected to add momentum to the already strengthening urban and rural consumption and support capital expenditure and credit growth. 'Inflation at a benign 2.2% and growth touching 8% in the first half of the year have already prompted the government to lift its full-year GDP estimate to 7.3%. In that context, the RBI’s unexpected 25 bps rate cut to 5.25%, along with a neutral stance, stands out as a bold move. It will certainly add more momentum to urban and rural consumption, which is already improving, and could further support capex and credit growth,' said Divam Sharma, Co-Founder and Fund Manager at Green Portfolio PMS.

Real Estate Market

Experts believe the rate cut, along with the policy stance, to be a positive development for the Indian real estate sector. 'The RBI’s decision to cut the repo rate by 25 bps is a distinct positive for the Indian real estate sector as we close 2025. Coming on the back of earlier easing cycles this year, this move further sweetens the value proposition for homebuyers, particularly in the affordable and mid-income segments, which are highly sensitive to interest rate fluctuations,' said Anuj Puri, Chairman – ANAROCK Group.

According to ANAROCK Research, the average housing prices across the top 7 cities in India rose by nearly 10% in 2025. The latest rate cut offers a cushion, as it can potentially bring home loan interest rates down to more attractive levels and encourage aspiring homebuyers to take the plunge. 'The rate cut is a distinct sentiment multiplier for year-end sales,' Puri added, 'However, the real impact hinges on the effective transmission of these benefits. If banks swiftly pass on this rate cut to borrowers, we anticipate a renewed surge in sales velocity carrying firmly into Q1 2026. The current trends indicate that luxury homes will continue to drive residential real estate in 2026, as well.'

A repo rate cut usually translates to lower loan rates, which means this cut can be favorable for borrowers, especially first-time homebuyers in the affordable housing category. 'This cumulative rate cut has and will bring favorable relief to borrowers, especially first-time homebuyers in the affordable housing category, as a reduction in rates cuts down their EMI burden and opens up further avenues towards homeownership,' said Rishi Anand, MD & CEO, Aadhar Housing Finance.

The current environment remains highly favorable for EWS and LIG customers looking to buy affordable houses. Coupled with government support through schemes like PMAY, the rate cut could motivate and help many families to buy their first home. 'For EWS and LIG customers, even a small rate reduction can make homeownership more accessible and boost their confidence to take the step towards owning a home. With strong demand emerging from Tier 2 and Tier 3 cities and continued government support through schemes like PMAY, the environment remains highly favorable for affordable homebuyers. This will further energize the segment and help more families move closer to securing their first home,' Anand concluded.