New Delhi:
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Friday announced a 25 basis points cut in the repo rate, bringing it down to 6.25% from the earlier 6.5%. This is the first time after 2020 that the RBI has cut its interest rates.
The central bank had gone for repo rate hikes following the Covid-19 pandemic but kept it unchanged at 6.5% in its last 11 meetings.
RBI Governor Sanjay Malhotra said the committee opted to go for a neutral stance, a shift implemented in October 2024, signalling a willingness to adjust policy rates based on the changing economic conditions. Mr Malhotra said the global economic backdrop remains challenging with the global economy growing below the historical average. The Indian economy is not immune to global headwinds, but it remains strong and resilient, he said.
The repo rate cut is expected to provide relief to borrowers with loan EMIs likely to go down. This comes just days after Nirmala Sitharaman announced new income tax slabs in Budget 2025 and effectively made earnings up to Rs 12 lakh free from taxes.
With the RBI lowering its lending rates, leading banks in India are also expected to follow the lead. This will bring down loan interest rates and in turn EMI rates for eligible borrowers across the country.
How RBI Repo Rate Cut Affects Loan EMIs
The interest rates on most bank loans, including home, car and MSE loans, are linked to external benchmark linked rate (EBLR). The repo rate is one such EBLR, meaning that a cut in this rate will immediately lower the interest rates on most loans. So, borrowers get benefits from a repo rate cut.
Here is an example of how a repo rate cut will affect your EMI.
Suppose you have a car loan of Rs 10 lakh with an interest rate of 9% per annum and a tenure of five years. At the current rates, you will pay Rs 20,758 as EMI. After the 25 bps cut, the interest rate will be reduced to 8.75%. This means that you will have to pay Rs 20,637 as EMI.
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