Explainer: Here is why experts think 2025 is a good year for home loan borrowers

It seems 2025 is going to be a good year for home loan borrowers in the country. The Reserve Bank of India's monetary policy committee (MPC) reduced the repo rate by 25 basis points (0.25 per cent) in February and followed that up with another 25 bps cut last week. Cumulatively, the benchmark rate at which the Reserve Bank lends money to commercial banks has now declined to 6.0 per cent from 6.50 per cent earlier and it's only expected to fall further in coming months as inflation cools and growth worries linger.

 

Aided by falling food prices, India's CPI (consumer price index) inflation declined to 3.34 per cent in March, its lowest level in almost six years. 

 

"Much of the disinflation in March was on the back of food, which eased to 2.9 per cent year-on-year," pointed Radhika Rao, executive director and senior economist at DBS Bank. The decline in inflation validated the central bank's decision to shift its stance to "accommodative," along with a rate cut. 

 

RBI has projected CPI inflation to average 4 per cent in the current financial year ending March 2026. The latest inflation print will be hugely comforting for RBI Governor Sanjay Malhotra, who stressed last week that amid challenging global economic conditions, the benign inflation outlook and moderate growth demand that the MPC continue to support growth.

 

Indeed, growth risks have emerged stronger over the last few months. While urban domestic demand has been slow for some time now, the reciprocal tariffs announced by US President Donald Trump have also cast a shadow on global growth and, in turn, various export-oriented sectors. Throughout the last year, volatile food inflation has been a challenge. But, food prices have been falling in recent months and predictions of another good monsoon this year should augur well.

 

Against this backdrop, economists now see the RBI cutting the repo rate by at least another 50-100 basis points on top of the earlier cuts. This is in contrast to earlier expectations of many that this would be a shallow rate easing cycle.

 

"The softer than expected CPI inflation will provide further comfort to RBI to continue to prioritise growth. We retain our view that RBI will continue on its accommodative stance with the terminal repo rate likely around 5-5.25 per cent," said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.

 

The rate cuts apart, the RBI has also injected ample liquidity into the system in the last few months. This should also augur well and help in faster rate transmission in the banking system. 

 

Nomura economists Aurodeep Nandi and Sonal Varma also see the terminal repo rate at 5.0 per cent. They noted that daily data for the first half of April suggested headline inflation is likely to moderate further to a shade above 3 per cent, with continued contraction likely in vegetable prices.

 

"We expect headline inflation to remain sub-4 per cent through the remainder of 2025, averaging 4.1 per cent in FY26. However, we have a more bearish outlook for GDP growth at 5.8 per cent in FY26 (RBI forecast 6.5 per cent). Consequently, we expect the RBI to deliver 100 bps of additional rate cuts in 2025," said Nandi and Varma. 

 

Economists at HSBC are expecting the RBI MPC will reduce the repo rate by 25 bps in each of the June and August policy meetings, taking the repo rate down to 5.5 per cent. They have forecast CPI inflation to average 3.7 per cent this financial year, well below RBI's 4 per cent target.

 

"Food inflation is likely to fall further from April onwards when the new wheat crop hits the market. Furthermore, the IMD has issued a normal monsoon forecast for 2025. Core inflation, too, will likely remain soft, led by the recent appreciation of the rupee, imported disinflation from China, softer oil prices, and weaker domestic growth," said HSBC economists Aayushi Chaudhary and Pranjul Bhandari. 

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