The Reserve Bank of India (RBI) has recently made a change in the Repo Rate, which can have a major impact on loans and the country’s economy. This time RBI has reduced the repo rate by 25 basis points to 6%. This is the second consecutive time the repo rate has been cut. The purpose of this decision is to promote economic growth and control inflation. Let us understand in detail in this article how this change affects your loan, EMI and savings.
What is Repo Rate? (What is the repo rate?)
The repo rate is the rate on which RBI lends short -term money to banks. When the repo rate is low, it becomes cheaper to borrow money for banks. This directly affects the interest rates of the loan, making the loan cheaper.
New update of repo rate:
| date | Repo rate | shift |
| February 2025 | 6.25% | -0.25% |
| April 2025 | 6.00% | -0.25% |
Repo rate cut loans and EMI impact
Relief or shock for loans takers?
This decision of RBI may expect relief for loans takers. When the repo rate decreases, banks expect them to reduce their interest rates. This can reduce EMI of home loan, car loan and other individual loans.
- Home Loan: Interest rates for those taking new home loans may soon be reduced. The current rates are between 8.10% to 8.35%, which can now decrease.
- Car and two-wheeler loans: There is also a possibility of reduction in interest rates on car and two-wheeler loans, which will make EMI cheaper.
- Existing customers: Existing customers will get benefits according to their loan reset period (Quarterly or Half-Yearly).
Repo rate deduction impact on the economy
Economic growth promoted
This move of RBI has been taken to support economic development. When interest rates are low, people spend more and invest more, increasing demand in the market.
Inflation control
Repo rate cuts are also considered an important step to control inflation. Low interest rates motivate consumers to spend more, but it is necessary to keep it balanced so that inflation does not increase.
Role of banks: Will they benefit?
Although RBI has reduced the repo rate, it will be important to see whether banks reach it to customers or not. It has been seen many times in history that banks do not deliver the benefits of complete cuts to the customers.
- Some major banks such as HDFC and Axis Bank had earlier given the benefit of complete cuts to their customers.
- According to RBI rules, banks review the interest rates every quarter, but may vary.
Should you change your fixed deposit?
Repo rate deduction may reduce the interest rates received on fixed deposits (FD). In such a situation, investors should consider other options such as mutual funds or bonds.
Headlines:
- Repo Rate: Now 6%
- Loan Cheap: EMI likely to decrease
- Effect on savings: FD’s interest rates may decrease
- Economy: Hope to increase consumer spending
Disclaimer:
This article provides information based on the new repo rate cuts declared by RBI. However, the actual benefit will depend on how soon and how quickly the banks provide the benefits of this deduction to the customers. It would be appropriate to seek expert advice before making investment or financial decisions.
