As October 9 approaches, home loan borrowers may receive a significant relief with a potential reduction in EMI payments. According to a recent report from S&P Global Ratings, the Reserve Bank of India (RBI) is expected to cut the repo rate, benefiting not only individuals but also the real estate sector.

Economic Growth Projections Remain Steady

S&P Global Ratings has maintained its growth rate forecast for India, projecting:

6.8% for 2024-25

6.9% for 2025-26

Despite not increasing growth rate estimates, the agency anticipates that the RBI will decide to cut the repo rate during its monetary policy meeting from October 7-9. The current rate has remained at 6.5% since February 2023.

Factors Influencing the Rate Cut

Several factors have led S&P to predict this rate cut:

Declining Growth Rate: The economic growth rate fell to 6.7% in the April-June quarter, largely due to high-interest rates.

Reduced Urban Demand: Elevated interest rates have dampened urban demand.

Comparison to Previous Year: The growth rate was at 8.2% in 2023-24.

The agency believes that a reduction in interest rates could revitalize the country’s growth.

RBI’s Cautious Approach to Inflation

While S&P forecasts two potential repo rate cuts by March 2025, the RBI has indicated it will not rush into lowering rates until food inflation is under control. The challenges in achieving retail inflation at 4% without addressing food prices have been highlighted.

Current Inflation Projections: The inflation rate is estimated at 4.5% for this year.

Previously, SBI had also predicted that concerns regarding food inflation might prevent the RBI from cutting rates in 2024. However, with the recent significant rate cut by the U.S. Federal Reserve amid recession fears, speculation regarding an Indian rate cut has intensified.

Government Measures to Stimulate Growth

To support economic growth, the Indian government has allocated substantial funds for capital expenditure. Finance Minister Nirmala Sitharaman announced an allocation of:

₹11.11 trillion for capital expenditure in the July budget.

Additionally, the government aims to reduce the fiscal deficit below 4.5% by 2026, which will further bolster economic prospects.

In summary, if the S&P Global Ratings forecast materializes, a cut in interest rates could provide much-needed relief to borrowers and stimulate growth in the real estate sector.