Relief for Borrowers: RBI Slashes Interest Rates After Nearly 5 Years, RBI cuts Repo rate
On February 7, 2025, the Reserve Bank of India (RBI) announced a cut in the repo rate by 25 basis points, bringing it down to 6.25%. This marks the first interest rate cut in nearly five years and is intended to stimulate economic growth. The last time the RBI reduced the repo rate was in May 2020. The Monetary Policy Committee (MPC), under the leadership of Governor Sanjay Malhotra, made the decision after holding the rate steady for the previous eleven policy meetings.
Lower EMIs: The repo rate cut is expected to translate to lower Equated Monthly Installments (EMIs) for home loans, auto loans, and personal loans. For example, a home loan of ₹50 lakh at an interest rate of 8.5% for 20 years would see a monthly EMI reduction of ₹607, resulting in an annual saving of ₹7,284.
Floating vs. Fixed Interest Rates: Borrowers with loans under the repo rate-linked floating interest rate system will benefit as banks pass on the rate cut. New borrowers can also expect lower interest rates on loans.
The RBI’s move is expected to ease borrowing costs and stimulate economic growth, especially benefiting homebuyers and other borrowers
The Reserve Bank of India (RBI) has announced a 25-basis point reduction in the repo rate, bringing it down to 6.25%. This marks the first rate cut in nearly five years and aims to stimulate economic growth. The decision, made by the Monetary Policy Committee (MPC) led by Governor Sanjay Malhotra, follows their meeting on February 7.
Repo Rate Cut: The RBI has reduced the repo rate by 25 bps to 6.25%, the first cut since May 2020.
Impact on Borrowers: The repo rate cut is expected to lower interest rates on loans, benefiting homebuyers and other borrowers by decreasing equated monthly installments (EMIs). For example, a home loan of ₹50 lakh over 20 years could see monthly savings of ₹791 with the new rate.
Economic Impact: The rate cut aims to encourage spending and investment by making borrowing more affordable for businesses and individuals. This move is expected to boost the real estate market and broader economic activity.
Growth and Inflation: The RBI has revised India’s GDP growth forecast for FY26 to 6.7% and projects inflation at 4.2%.
MPC Decision: The MPC voted unanimously to cut the key rate from 6.5 per cent to 6.25 per cent. The committee had kept the rate unchanged in the last 11 policy meetings.
Global Context: The global economic backdrop remains challenging, but the Indian economy remains strong and resilient.
