In a significant move aimed at boosting consumption and easing financial pressure on borrowers, the Reserve Bank of India (RBI) on Friday announced a 50 basis points cut in the repo rate, bringing it down from 6.0% to 5.5%. This decision is expected to bring major relief to millions of loan holders as Equated Monthly Installments (EMIs) are set to decline across home, auto, and personal loans.
This is the third consecutive rate cut by the central bank, signaling a strong push to revive economic momentum amid ongoing macroeconomic concerns. For new borrowers, the reduction opens the door to cheaper loan options, while existing borrowers with floating-rate loans tied to the repo rate will see lower monthly payments soon.
What It Means for Borrowers
The repo rate is the key interest rate at which the RBI lends to commercial banks. A reduction in this rate makes borrowing cheaper for banks, which in turn reduces lending rates for consumers.
Take, for example, a ₹50 lakh home loan taken for 30 years from HDFC Bank at an 8.70% interest rate. The EMI currently stands at ₹39,136. With a 50 bps cut bringing the rate down to 8.20%, the new EMI would be ₹37,346 — saving ₹1,790 per month, or ₹21,480 annually.
Public sector banks and major housing finance companies are likely to respond quickly by revising their lending rates, resulting in attractive deals for new homebuyers and significant savings for existing customers.
Repo Rate Journey: A Quick Recap
- Steady at 4% (May 2020 – April 2022) during the COVID-19 pandemic
- Gradual hikes from April 2022 – February 2023, peaking at 6.5%
- Current cut brings repo rate down to 5.5%, continuing the recent easing trend
The rate cut is also expected to boost demand in the real estate, automobile, and consumer goods sectors by improving liquidity and credit availability. With borrowing costs now more affordable, the RBI’s move is a strong nod to the financial concerns of the middle class and an attempt to stimulate broader economic growth.
