RBI Cuts Repo Rate by 25 Basis Points to 5.25%, Boosting Borrower Affordability

In a significant move to ease financial burdens, the Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points, bringing it down from 5.50% to 5.25%. The reduction, announced at the latest monetary policy meeting, is expected to lower home loan EMIs immediately and increase affordability for borrowers.

Immediate Impact on Borrowers and Banks

The repo rate cut is expected to benefit both households and banks:

• Homeowners: Lower EMIs as interest rates on housing loans adjust.

• Banks: Opportunities for loan renewal at reduced rates, which could increase lending activity and overall business growth.

Sanjay Malhotra from a government bank said, “The last month was a matter of concern, but strong GDP growth and low inflation are what we expect in the following periods.”

Economic Outlook and MPC Confidence

The Monetary Policy Committee (MPC) voted unanimously for the cut, reflecting confidence in maintaining a balance between economic growth and price stability. The central bank forecasts:

• Inflation: Around 2%

• GDP Growth: 8% for the first half of the fiscal year

Repo Rate Cuts in 2025

This is the fourth rate cut of 2025:

• February & April: 25 basis points each

• June: 50 basis points

Overall, the repo rate has been reduced by 125 basis points this year, from 6.50% to 5.25%. Other key rates remain unchanged:

• Cash Reserve Ratio (CRR): 3%

• Standing Deposit Facility (SDF): 5.25%

• Marginal Standing Facility (MSF): 5.75%

• Bank Rate: 5.75%

Expected Boost to Business and Economy

By making loans more accessible and repayment easier, the RBI expects increased economic activity. Businesses and households are likely to benefit from reduced borrowing costs, which could energise consumption, investment, and overall economic growth.