RBI Meeting 2025: A Gift for Home Loan Borrowers as Interest Rates Are Cut for the Second Consecutive Time
In a significant move, the Reserve Bank of India (RBI) has reduced the repo rate for the second consecutive time under the tenure of its new governor, Sanjay Malhotra. After a 25 basis point cut in February, the central bank has decided to reduce the rate by another 25 basis points, bringing it down to 6%. This reduction has a direct impact on home loan borrowers, as the lower interest rate is expected to decrease their Equated Monthly Installments (EMIs).
How Does This Benefit Home Loan Borrowers?
If you are a home loan borrower or planning to take one, this news will bring a smile to your face. After a 25 basis point cut in the policy rate in February, the RBI has once again slashed the rate. On Wednesday, the Monetary Policy Committee (MPC) announced another 25 basis point reduction in interest rates, bringing the repo rate down to 6%. Earlier, the repo rate had reduced from 6.5% to 6.25% following the February cut. Now, with this latest reduction, home loan EMIs are set to become more affordable.
What Does the Middle-Class Relief Look Like Under the New Governor’s Leadership?
This is the second MPC meeting under the leadership of RBI Governor Sanjay Malhotra, who took charge in December. His approach seems more dovish compared to the previous governor, Shaktikanta Das, who had refrained from altering interest rates for the last two years. Many economists had predicted a 25 basis point cut, and the latest decision is seen as a major relief for the middle class, particularly those with loans and EMIs to manage.
Over the past five years, this marks the second time that the RBI has reduced the repo rate, cutting interest rates by 50 basis points in two consecutive decisions. This drop is likely to prompt banks to lower their interest rates on home loans and other types of credit.
How Will the Repo Rate Cut Directly Affect Your EMI?
The repo rate cut will directly benefit borrowers, as it will lead to lower interest rates and reduced EMIs. Under Sanjay Malhotra’s leadership, the RBI is expected to continue this more accommodative stance. Many borrowers who had been burdened with higher interest rates in recent years are now poised to benefit from the RBI’s decision.
With the recent 25 basis point reduction, the repo rate now stands at 6%. This means banks will have to adjust their home loan rates accordingly. For instance, if you have a home loan with an interest rate of 8.5%, it will now drop to 8.25%.
This may seem like a small reduction, but the impact on your monthly EMI can be significant, especially for long-term loans.
How Much Can You Save on Your EMI with the New Repo Rate?
Here’s an example calculation to help you understand how much your EMI might decrease.
For a Home Loan of ₹30 Lakhs:
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If the current interest rate is 8.5%, the EMI would be ₹26,035.
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With the new rate of 8.25%, the EMI will reduce to ₹25,562.
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This means a monthly saving of ₹473.
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Over a year, that’s a total saving of ₹5,676.
For a Home Loan of ₹50 Lakhs:
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If the current interest rate is 8.5%, the EMI would be ₹43,391.
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With the new rate of 8.25%, the EMI will reduce to ₹42,603.
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This results in a monthly saving of ₹788.
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Over the course of the year, that’s a saving of ₹9,456.
What Exactly is the Repo Rate?
The repo rate is the rate at which the RBI lends money to commercial banks. When the repo rate increases, banks get loans at higher rates from the RBI, which leads to an increase in interest rates for various loans, including home loans, car loans, and personal loans. This directly affects the EMI you pay each month.
How Does the Repo Rate Influence Inflation?
The RBI uses the repo rate as a tool to control inflation. When the economy is growing too quickly and inflation rises, the RBI may increase the repo rate to curb excessive spending. Conversely, during an economic slowdown, a rate cut encourages spending and investment, helping to stimulate growth.
In conclusion, the RBI’s decision to reduce the repo rate for the second consecutive time is a welcome move, particularly for home loan borrowers.
It not only makes borrowing cheaper but also provides much-needed relief to millions of middle-class families across India. This move demonstrates the RBI’s commitment to fostering a more accommodative economic environment under the leadership of Governor Sanjay Malhotra.
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