With this cut, the RBI MPC has reduced rates by a cumulative 100 basis points in 2025 to boost fragile economic growth: Reports
MUMBAI: The Equated monthly instalments (EMIs) on your home, car, education and business loan is set to reduce further as the rate setting panel of the Reserve Bank of India (RBI) on Friday cut the benchmark repo rate by 50 basis points to 5.5 per cent. Repo rate is the rate at which the central bank lends short term money to commercial banks. A lower repo rate means banks can borrow funds at a lower cost from the central bank and are expected to pass on the lower cost to the borrowers.
With this cut, the RBI MPC has reduced rates by a cumulative 100 basis points in 2025 to boost fragile economic growth.
Speaking at the Monetary Policy Press conference, RBI governor Sanjay Malhotra said, “Around 40 per cent of the total bank loans are linked to the external benchmark-based lending rate (read loan interest rate is linked to repo rate) where the immediate impact of the rate cut will happen.”
“Going by the past trends, transmission (of the past rate cuts) has happened faster this time. Normally policy transmission takes six to eight months. But from the first policy rate cut of 25 basis points in February, the average deposit rate has fallen by 27 basis points, outstanding credit rates have fallen by 17 basis points and on fresh loans by 6 basis points.”
All new floating rate loans be it home, car, education loans sanctioned after October 1, 2019 are linked to an external benchmark which is the repo rate for most banks. While the new borrowers with loans linked to repo rate will be offered loans at lower rate, the exact date of rate cut transmission to the old borrowers would depend on the rate reset dates set by their respective lenders. Till then, they will continue to service their loan as per their existing rates. However, borrowers mostly companies and SMEs whose loans are linked to Marginal Cost of Funds based lending rate (MCLR) will have to wait for a few months to see a reduction in their debt burden. Also, all other loans with fixed rate of interest will not fall. These include personal loans which are of short duration and the interest rate is fixed.
Pramod Kathuria, Founder and CEO of Easiloan said, “A lower repo rate usually means reduction in the lending rates and thus, both existing and new borrowers stand to benefit from lower EMIs. For example, a 20-year home loan of ₹50 lakh would see monthly EMIs shrink by more than ₹1,500, which amounts to a total saving of nearly ₹4 lakh over the loan period, if the rate is cut by 0.50 per cent.”
But savers will lose as their deposits will fetch lower returns. Already fixed deposits (FDs) rates have been reduced in the range of 30-70 bps since February 2025 rate cut. Banks are expected to further cut deposit rates.
The six-member MPC led by Governor Sanjay Malhotra also changed the stance of the monetary policy to ‘neutral’ from ‘accommodative’. In addition, the central bank cut the CRR by one per cent to three percent which would release primary liquidity of about ₹2.5 lakh crore to the banking system by December 2025. Besides providing durable liquidity, it will reduce the cost of funding of the banks, thereby helping in monetary policy transmission to the credit market.
The RBI retained the GDP growth forecast for FY26 at 6.5 per cent with strong support from rural and urban demand, investment momentum and above-normal monsoon expectation. On the other hand, it lowered inflation forecast for FY26 to 3.7 per cent from 4 per cent due to falling food prices.
