How Cheaper Loans Will Be After 0.25% Repo Rate Cut By The RBI

Mumbai: The Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points to 6.25% from 6.5%. It was the first rate cut in almost five years, the last during the COVID-19 pandemic in May 2020. This decision was made during the MPC meeting headed by newly appointed RBI Governor Sanjay Malhotra.

Key Highlights

Cut in Repo Rate: The repo rate, the rate at which RBI lends to commercial banks, has been lowered to 6.25%. This is likely to ease borrowing rates for consumers and businesses and may help lower EMIs on housing loans, car loans, and personal loans.

Economic Context Under which this decision has been taken: The decision comes in the backdrop of moderating inflation and cooling economic growth. India’s GDP growth rate of 6.6% for FY25 has been revised to 6.4%. The GDP growth is now pegged at 6.7% for fiscal year 2026.

Inflation: Commenting on inflation, the RBI has projected 4.2% inflation for FY26, and Governor Malhotra stressed that inflation is “well within” the central bank’s tolerance band most of the time.

Effect on Borrowers and Economy

The rate cut is likely to reduce the cost of loans, with banks likely to transmit the advantage to customers. The theory goes that cheaper borrowing will spur consumer spending and investment and add some pep to activity. Nevertheless, some risks to India’s economic outlook come from global economic headwinds and political uncertainty over trade policies.

RBI Governor’s Remarks

In his first policy announcement, Governor Malhotra said that the Indian economy underpins strong fundamentals against challenges witnessed in other global economies. This rate cut aims to provide growth with house price stability.” He similarly pointed out that consultations with stakeholders strengthen the economy.

The latest rate reduction marks a change from the slower-moving interest rate component of monetary policy towards a pro-growth supportive monetary setting after almost two years of sideward to higher interest rates since May 2022.

Given the easing inflation numbers and the liquidity measures, the decision will relieve borrowers and stimulate key growth sectors such as housing and consumer durables.