RBI Repo Rate Cut: RBI’s 50 Bps Rate Cut Could Lead To Lower EMIs, Cheaper Home Loans

The Reserve Bank of India (RBI) reduced the repo rate by 50 basis points (bps) to 5.50 per cent, and the cash reserve ratio by 100 basis points (bps) on June 6, 2025. Although this announcement will make loans less expensive for customers, its ripple effect will be seen across banks, non-banking financial companies (NBFCs), and even for depositors.

The RBI’s monetary policy committee (MPC) also shifted its policy stance from ‘accommodative’ to ‘neutral’, meaning that the future rate settings will be guided by economic data, particularly inflation and growth trends.

Home Loan Borrowers to Gain

For loans linked to the external benchmark lending rate (EBLR), which is used by banks to determine the floating interest rates on loans, such as home loans, the rate reduction may lead to a reduction in equated monthly instalments (EMIs). Any change in the repo rate today will lead to a change in the rate of interest on repo rate-linked loans, although the transmission rate could differ from lender to lender.

Pramod Kathuria, CEO and founder of Easiloan, says, “A Rs 50 lakh home loan for 20 years would have the monthly EMIs reduced by over Rs 1,500, which comes to a cumulative savings of almost Rs 4 lakh over the tenure of the loan, if the rate is reduced by 0.50 per cent.” He adds that for borrowers, ‘it may be prudent to consider prepaying loans or increasing EMIs marginally to reduce tenure and interest burden’.

Vivek Iyer, partner, Grand Thornton Bharat, says: “The repo rate cut of 50 basis points brings significant relief to the existing buyers in terms of EMI reduction, which will increase the amount available for discretionary spending in the hands of households driving growth. This will also provide a significant flip to mortgage demand by new aspirant home owners driving growth as housing has a tendency to have a broader impact on economic growth.”

NBFCs May Offer Cheaper Loans

A reduction in CRR is likely to pump Rs 2.50 lakh crore into the banking system, considerably enhancing liquidity. This is especially welcome for NBFCs that frequently face higher interest rates on borrowings.

Says Amit Bansal, founder of BharatLoan, “This injection will significantly reduce the cost of funds for NBFCs… and offer room to extend affordable credit to India’s large salaried middle class, especially at a time when urban demand is rebounding.”

According to him, this will lead to lower borrowing costs, more accessible personal loans, consumer loans, and small-ticket financing, particularly for those not who are out of mainstream banking segments.

Not All Borrowers Will See Immediate Relief

Though loans based on repo rate will experience faster rate reductions, those based on base-rate or marginal cost of lending rate (MCLR) may face delayed transmission. 

Fixed-rate loan borrowers, especially those in auto or personal loan segments, will not gain time benefits unless they opt for a refinancing. Public sector banks tend to be faster in adjusting lending rates, but private banks tend to lag behind. As borrowers should find out their loan category and get in touch with their banks about rate adjustments.

What’s In For Depositors

Kathuria adds that depositors, particularly retirees who depend on interest earnings, could be affected. “Other depositors might have to bear the brunt of further cuts in fixed deposit rates,” he says.

Anand K Rathi, co-founder, MIRA Money, however, says that for investors this is a positive signal. While bond yields may decline it could make equity attractive for investors.

“For investors, this is a double-positive: equity valuations could get a re-rating boost, while bond yields are likely to soften further, making both asset classes attractive in the short to medium term. For capital markets, this could be the long-awaited catalyst. Lower interest rates improve the relative attractiveness of equities, even at high valuations. Additionally, bond yields are already softening — with G-Sec yields dropping to 6.1 per cent and expected to go below 6 per cent soon."

He adds: “The RBI’s 50 bps repo rate cut, coupled with a reduction in CRR, is a bold and decisive move — something we last witnessed during the 2020 pandemic and in 2008 before that. With liquidity now expected to improve by over Rs 2.50 lakh crore, the policy action signals a strong pro-growth stance amid easing inflation. This action is consistent with the accommodating stance that the newly appointed RBI Governor had indicated from the beginning. With the CRR reduced to 3 per cent and the repo rate now at 5.5 per cent and systemic liquidity will be greatly increased.”

A Shift in Policy, But With Limits

The reduction in rate by RBI is part of a broader attempt to stimulate credit growth and economic activity in the country amid falling inflation, which stood at 9.80 per cent in May 2025, after falling from 19.50 per cent during the same period last year.

V.K. Vijayakumar, chief investment strategist at Geojit Investments, says: “This big rate cut is, as the RBI Governor said, front-loading of the rate cut. The change in stance indicates more cuts are unlikely unless the situation warrants…It will impact the margins of banks, and therefore bank stocks may face near-term pressure. However, the credit growth this cut could trigger may balance out the dip in margins.”

Good Time to Review Your Loans

The most recent monetary policy actions lean in the direction of borrowers, particularly those with floating-rate loans or in need of new credit. However, depositors might have to move with caution in a low-interest-rate world.

Says Kathuria: “In general, a rate cut offers respite and enables borrowers to rethink their financial plans, but on the other hand, it requires caution from savers trying to manoeuvre through low interest rates.”

So, if you are a borrower, now may be a good time to examine your loan arrangement, consider refinancing, or adjust your repayment plan.