“In life, timing is crucial. You must take the right step at the right time,” declared a smug Biswajit while having tea with his wife Ruchi on a Sunday afternoon.
Biswajit is an investment manager in a financial services company and prides himself on his ability to predict the ups and downs of the financial market.
“Not always,” Ruchi voiced her disagreement, “there is no good or bad time to invest in a property, especially if you buy it on a home loan.”
There is a reason why Ruchi said that.
And Biswajit stayed silent.
We will discuss Ruchi’s point of view later in this article but for now, let us analyze the interest rate cycle and its significance for homebuyers.
Inflation and Interest Rate — A Close Link
For the last 5 years or so, inflation has been rather high in India.
Now, you know, high inflation means high interest rates.
That is how Central Banks (RBI in India) respond to control inflation.
RBI has been raising interest rates gradually for most of the last 5 years.
However, inflation data has been consistently within a short range for quite some time, and as of January 2025, the year-on-year inflation rate in India was 4.31%, based on the All India Consumer Price Index (CPI). This was the lowest year-on-year inflation rate since August 2024.
In a high-interest rate environment, a large number of consumers defer their purchases of high-value items like property or cars. Many homebuyers wait for the interest rate to soften so that the EMIs are lower.
However, as Ruchi rightly pointed out, there is no good or bad time to buy a home.
The reason is simple. Home loans come with long tenures — usually 15 to 25 years. Interest rates (and EMIs) go up and down several times during this period and they average out.
Interest Rate Cut: An Attempt to Boost Growth?
High interest rates do not only affect consumers but also slow down economic growth. The real estate sector is also not impervious to it.
The high cost of borrowing affects the real estate developers as much as it affects the homebuyers.
If the high interest rate regime persists for too long it starts to plunge the economy into a long low growth phase. There are damaging consequences of poor growth such as lower GDP, reduced job creation, etc.
RBI understands this and reduced the Repo Rate by 25 basis points (bps) from 6.50% to 6.25%.
This is a hugely significant move by RBI.
Does it Signal the Beginning of a Low Interest Rate Regime?
It has been a long 5 years since RBI reduced the Repo Rate. The financial experts are upbeat about this move.
If you consider the series of recent policy measures, you have every reason to be optimistic.
Let’s understand it in some detail.
The typical response to fight high inflation is to suck out some cash from the system as inflation means “too much money chasing too few goods.”
However, in a coordinated policy shift, the government and RBI started to increase cash in the system.
Obviously, inflation is no longer considered a major threat and economic growth is prioritized now.
RBI signaled a policy shift with the 50 basis point reduction of the Cash Reserve Ratio (CRR) in December 2024. CRR was brought down to 4% from 4.5%. This was the first CRR cut in over 4.5 years.
It was implemented in two phases, each 25 basis points, and took effect on December 14 and December 28.
Subsequently, the Union Budget took significant tax deductions to put more money in the hands of the consumers.
Clearly, the policymakers have been taking consumer-friendly pro-growth steps rather than inflation control.
The Repo Rate reduction is the continuation of the same policy change.
Can We Expect More Such Steps?
Policymakers are going to keenly watch the effect of increased liquidity in the system and whether there is any rise in inflation.
Of course, there will be some hike in food inflation once the winter is over and summer sets in. Traditionally, winter is the period of lowest food inflation in India.
At the same time, there are concerns about a stronger US Dollar (making imports costlier) and a possible tariff war with the US.
The fundamentals of the Indian economy are very resilient and can withstand such minor shocks.
The policy direction is expected to remain unaffected, although RBI might change the pace and quantum of policy measures based on situations on the ground.
Homebuyers can expect lower EMIs soon.
The Final Words
There is no perfect time to buy a property, especially if you are staying on rent. However, stable inflation and low EMIs give homebuyers extra confidence to purchase their dream homes now.
