Massive Relief for Borrowers as RBI Slashes Repo Rate to 5.50%; EMIs Set to Fall
Mumbai, June 6, 2025:
The Reserve Bank of India (RBI) has cut the repo rate by 50 basis points, bringing it down to 5.50%, while also reducing the Cash Reserve Ratio (CRR) by 100 basis points to 3%. This marks the third straight rate cut in 2025, aimed at boosting credit growth and supporting economic recovery amid falling inflation and global slowdown concerns.
The decision was announced after the conclusion of the Monetary Policy Committee (MPC) meeting, with the central bank also shifting its stance from accommodative to neutral.
Why Did the RBI Cut the Repo Rate?
According to RBI Governor Sanjay Malhotra, the move is aimed at encouraging lending activity and supporting demand recovery. With inflation projected at 3.7%, well below the 4% comfort level, the central bank found room to ease policy rates without risking price instability.
The GDP growth forecast remains unchanged at 6.5%, but the RBI acknowledged risks from weak global trade and soft domestic investment. The CRR cut is expected to inject liquidity of over ₹1.2 lakh crore into the banking system.
“This is a front-loaded move to support growth while inflation remains under control,” said the Governor.
What It Means for Borrowers
The repo rate cut is good news for millions of home loan, auto loan, and personal loan customers. Banks are expected to pass on the benefit to consumers through lower external benchmark lending rates (EBLR).
Those with floating-rate EMIs will likely see a reduction in monthly payments. New borrowers may find it easier to access cheaper credit across retail and MSME sectors.
Example: A ₹40 lakh home loan at 9% for 20 years may now see a drop of ₹1,000–₹1,500 per month in EMI, depending on the lender.
Impact on Fixed Deposits and Savers
On the flip side, depositors may face lower interest rates on fixed deposits and savings accounts. With cost of funds reducing, many banks are expected to lower deposit rates in the coming weeks.
Some public sector banks like PNB and BoB have already indicated a review of their term deposit rates. Senior citizens relying on interest income may consider short-term FDs or alternatives like RBI Floating Rate Bonds.
Stock Market Reaction: Banking Stocks Surge
The markets reacted positively to the announcement. The Nifty Bank index jumped over 3% in afternoon trade. Stocks of major banks like HDFC Bank, Axis Bank, and IDFC First Bank witnessed strong buying interest.
Investors are optimistic about the growth potential of the housing, consumer finance, and infrastructure sectors after this rate cut.
What’s Next?
The RBI’s next MPC meeting is scheduled for August 7–9, 2025. Analysts believe the central bank now has room to pause and assess the economy’s response. However, if inflation stays below target and growth remains moderate, further easing cannot be ruled out.
The neutral policy stance gives the RBI flexibility to either cut or hold rates depending on upcoming data trends.
Key Takeaways at a Glance:
| Policy Tool | Status (Post MPC) |
|---|---|
| Repo Rate | 5.50% ↓ |
| CRR | 3.0% ↓ |
| Policy Stance | Neutral |
| Inflation Estimate | 3.7% |
| GDP Growth Forecast | 6.5% |
| Next Policy Meeting | August 7–9, 2025 |
FAQs: RBI Rate Cut Explained
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