In a widely-anticipated move, the Reserve Bank of India (RBI) has announced a 25-basis point (bps) reduction in the repo rate, marking a significant step to ease borrowing costs and stimulate economic growth. The decision, unveiled by RBI Governor Sanjay Malhotra on Friday, February 7, follows extensive deliberations by the Monetary Policy Committee (MPC).
The repo rate cut is expected to lower interest rates on loans, particularly benefiting homebuyers and other borrowers. This decision comes against the backdrop of a slowing economy, moderating inflation, tight liquidity conditions, and ongoing stock market volatility. The MPC move aligns with market expectations, especially after the Union Budget emphasized consumption-driven growth.
Analysts at SBI Research had earlier projected a 25-bps reduction in February, with a cumulative cut of at least 75 bps over the current cycle. While some experts speculated that the RBI might delay the rate cut due to liquidity constraints, the central bank opted for immediate action to support economic recovery.
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Implications for Borrowers
Commenting on the RBI move, Adhil Shetty, CEO of Bankbazaar.com, said, “The rate cut is expected to translate into lower equated monthly instalments (EMIs) for home loans, auto loans, and personal loans, making credit more affordable for consumers. Banks and financial institutions are likely to pass on the benefits by reducing their lending rates, which could ease financial pressures for both existing and new borrowers. This is particularly advantageous for first-time homebuyers and existing borrowers.”
Let’s understand how it impacts EMIs!
Suppose your home loan interest rate is 8.75% and it gets reduced to 8.50% after the repo rate cut. What impact will it have on your EMIs? Below is a comparison of how a 25 bps rate cut impacts loan EMIs for a ₹50-lakh home loan over a 20-year tenure:
Interest RateEMIsPer Month Savings8.75%44,186Rs 7918.50%43,391 Economic Impact
The RBI decision underscores its commitment to balancing inflation control with growth support as laid down in the Union Budget 2025 where taxable income up to Rs 12 lakh was kept outside the tax liability.
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