RBI Cuts Repo Rate by 0.25%: Loans to Become Cheaper, EMI to Reduce
Loans to Get Cheaper as RBI Lowers Interest Rate
Loans are set to become cheaper in the coming days as the Reserve Bank of India (RBI) has reduced the repo rate by 0.25%, bringing it down to 5.25%. This decision was taken during the Monetary Policy Committee (MPC) meeting held from December 3 to 5. RBI Governor Sanjay Malhotra announced the rate cut on December 5.
The repo rate is the interest rate at which RBI lends money to commercial banks. A reduction in repo rate makes borrowing cheaper for banks, and they usually pass on this benefit to customers. As a result, home and auto loans are expected to become cheaper by around 0.25%.
After the rate cut, the EMI on a ₹20 lakh loan for 20 years will reduce by around ₹310, while a ₹30 lakh loan will see an EMI reduction of nearly ₹465. Both new and existing borrowers will benefit from this move.
Lower Interest Rates to Boost Housing Demand
With the repo rate reduced, banks are likely to cut interest rates on home and auto loans. Lower borrowing costs are expected to boost housing demand, making real estate investments more attractive. The real estate sector is likely to receive a significant push.
RBI Revises Inflation Forecast, Maintains GDP Outlook
RBI has revised inflation and GDP projections for FY26 and FY27:
GDP Growth Projection (Upgraded)
- FY26: Revised upward from 6.80% to 7.30%
| Quarter | Earlier | Now |
|---|---|---|
| Q3 FY26 | 6.40% | 7.00% |
| Q4 FY26 | 6.20% | 6.50% |
| Q1 FY27 | 6.40% | 6.70% |
| Q2 FY27 | – | 6.80% |
Inflation Forecast (Reduced)
- FY26: Reduced from 2.6% to 2.0%
| Quarter | Earlier | Now |
|---|---|---|
| Q3 FY26 | 1.80% | 0.60% |
| Q4 FY26 | 4.00% | 2.90% |
| Q1 FY27 | 4.50% | 3.90% |
| Q2 FY27 | – | 4.00% |
Repo Rate Cut Four Times This Year
This is the fourth reduction in repo rate during the year:
- February: Repo reduced from 6.50% to 6.25% (first cut after almost 5 years)
- April: Another 0.25% cut
- June: Third cut of 0.50%
- December: Fourth cut of 0.25%
In total, the MPC has reduced the repo rate by 1.25% in four rounds.
What Is Repo Rate and How Does It Make Loans Cheaper?
The repo rate is the interest rate at which banks borrow from RBI. When RBI reduces the repo rate, banks get cheaper loans and often reduce their lending rates for customers. This results in lower EMIs and reduced borrowing costs across home, auto, and personal loans.
Why Does RBI Increase or Decrease Repo Rate?
The central bank uses the policy rate to control inflation and manage economic growth.
When inflation is high:
- RBI increases the repo rate
- Banks get costlier loans
- Loans become expensive for customers
- Money supply decreases → demand drops → inflation slows down
When the economy is weak:
- RBI cuts the repo rate
- Borrowing becomes cheaper for banks and customers
- Money supply increases → economic activity strengthens
MPC Holds Meetings Every Two Months
The Monetary Policy Committee consists of 6 members — 3 from the RBI and 3 appointed by the central government. MPC meetings are held every two months. RBI has already released the meeting schedule for FY25–26, with a total of six meetings planned. The first meeting took place on April 7–9.
