In a move aimed at shielding India’s economy from both internal sluggishness and external headwinds, the Reserve Bank of India (RBI) has slashed the repo rate by 25 basis points, bringing it down from 6.25% to 6%. This marks the second consecutive rate cut this year and the first since the onset of the economic slowdown tied to global uncertainties such as the newly imposed US tariffs on Indian imports.
For borrowers, this reduction offers timely relief. A lower repo rate—essentially the interest at which the RBI lends to commercial banks—lowers the cost of funds for banks. In turn, this opens the door for a potential decrease in interest rates on loans, especially home and personal loans. If banks pass on the benefit in full, the savings could be significant. A ₹50 lakh home loan over 30 years, for example, could see a monthly saving of nearly ₹900, amounting to ₹11,000 annually.
This is particularly significant for middle-class households navigating high living costs. Homebuyers looking to take new loans, or those with floating-rate agreements, stand to benefit the most. Borrowers on older MCLR or base rate-linked loans should consider switching to repo-linked products to take full advantage of this rate environment.
The decision also sends an important signal to the business community. For Indian enterprises, particularly MSMEs and startups, borrowing just got cheaper. Easier access to credit could stimulate capital expenditure, aid in cash flow management, and encourage expansion during a period of global economic recalibration. In sectors like infrastructure, real estate, manufacturing, and retail, lower lending costs could be a welcome stimulant.
RBI Governor Sanjay Malhotra emphasized that the central bank’s growth projection remains steady at 6.5% for the current fiscal year, with inflation expectations revised down to 4% from the earlier 4.2%. These figures suggest that the central bank sees room to support growth while maintaining inflation within a manageable band.
However, the efficacy of this move depends on how banks respond. While repo-linked lending ensures quicker transmission of rate changes, not all borrowers are linked to this system. Only about 50% of floating-rate loans with public sector banks are repo-linked, with many still tied to the slower MCLR or base rate systems. Borrowers are thus encouraged to review their loan benchmarks and explore refinancing options.
For businesses, the rate cut is also a cue to revisit their financial strategies. Cheaper capital offers an opportunity to consolidate, invest in productivity-enhancing tools, or even explore expansion. That said, the impact may be offset partially by external shocks—like the 26% US tariff, which is expected to shave off 20–40 basis points from India’s GDP growth in FY 2025-26.
Ultimately, the RBI’s decision is a balancing act—bolstering growth while maintaining monetary discipline. For India Inc. and individual borrowers alike, the repo rate cut is an opportunity to plan better, invest wisely, and manage debt more effectively in a rapidly shifting global landscape, roiled as it is by tariffs and pressures aplenty on markets.
