RBI Cuts Repo Rate by 25 bps to 5.25%, Loans Likely to Get Cheaper

The Reserve Bank of India (RBI), in its latest Monetary Policy Committee (MPC) meeting, announced a 25-basis-point cut in the repo rate, bringing it down from 5.50% to 5.25%. The move, widely anticipated by economists, comes amid easing inflation and stronger-than-expected economic momentum.

Governor Sanjay Malhotra described the current economic environment as a “rare Goldilocks period,” citing strong growth and subdued inflationary pressures. Along with the rate cut, RBI also announced fresh liquidity-support measures to ensure the banking system remains well-funded — a move intended to facilitate transmission of lower costs into the broader economy.

Key Announcements

• Repo rate reduced by 25 bps to 5.25%
• GDP forecast for FY26 raised to 7.3%, up from 6.8%
• Liquidity infusion of ₹1.5 lakh crore announced to support credit flow
• Policy stance remains neutral, keeping room open for future rate adjustments
• Along with the rate cut, the RBI has also revised India’s inflation forecast for FY26 to 2%, down from the earlier estimate of 2.6%.

What does this mean for borrowers?

• With the repo rate cut, banks are likely to lower interest rates on loans, especially home loans and other floating-rate loans, which could result in lower EMIs for many borrowers. 
• For people with floating-rate home loans or loans linked to external benchmarks, the rate cut could lead to lower monthly EMIs, once banks adjust their lending rates.
• The liquidity boost announced alongside the repo cut should help ensure that banks have sufficient funds to lend, reducing risk-off lending behaviour and enabling smoother credit availability.

What does this mean for investors?

• Lower interest rates can boost the stock market, especially sectors like banking, real estate, and consumer goods.
• Fixed-income products (like FDs) may see slower growth in interest rates going forward.
• Investors may relook at their asset allocation, depending on risk and long-term goals.
• Overall, the rate cut is seen as good news for economic activity and could support higher growth in the coming quarters.

The RBI has kept its stance “neutral,” meaning it will stay flexible and make future decisions based on how inflation and growth move. If inflation stays low—as the new 2% forecast suggests—there may be room for further policy easing.

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