The Reserve Bank of India's Monetary Policy Committee raised the repo rate by 25 basis points to 5.50 percent on Wednesday, marking its first increase since February 2023. Governor Sanjay Malhotra also shifted the policy stance from Neutral to calibrated tightening, signaling an end to the rate-cut cycle.
Malhotra cited elevated crude oil prices, geopolitical uncertainty and tighter global monetary conditions as drivers of inflation. Despite these headwinds, he noted the Indian economy continues to show resilience.
The rupee weakened to 96.53 against the U.S. dollar following the announcement, its lowest level in over two months.
The rate increase will ripple through credit markets. Floating-rate home loan borrowers face higher Equated Monthly Installments as banks pass through increases via their reset cycles. Abhimanyu Munjal, MD and CEO of Hero FinCorp, said NBFCs will see funding costs rise but credit demand remains healthy. He expects the environment to support calibrated, quality-led growth.
Real estate faces mixed exposure. Anuj Puri, chairman of ANAROCK Group, said retail real estate will feel near-term pressure from higher financing costs and potentially softer festive consumption, with some new mall projects likely deferred. Commercial real estate remains insulated, driven by structural demand from Global Capability Centers, technology, and BFSI sectors. Affordable housing demand will face headwinds, Puri said, with rate cuts now unlikely in the near term.
