RBI's 50 BPS Rate Cut Is Good News For Borrowers, But They Should Remain Cautious, Say Experts

The Reserve Bank of India (RBI) Governor Sanjay Malhotra, on the concluding day of the Monetary Policy Meeting (MPC) on June 6, 2025, announced a 50 basis points (bps) cut in the repo rate. This is more than the expectations of experts, who anticipated a 25 bps cut in June and another 25 bps in August this year. Amid easing headline consumer price index (CPI) inflation, which moderated to 3.2 per cent in April 2025 compared to the previous year, the rate cut is surely good news for borrowers. In addition, a 100 bps decline in the cash reserve ratio (CRR) requirement will also strengthen liquidity in the system, enabling banks to offer loans with ease.

How Will The Rate Cut Impact The Borrowers?

Binod Kumar, MD and CEO, Indian Bank, says, "The RBI's decision to cut the repo rate by 50 basis points to 5.50 per cent while changing its stance to neutral will boost credit demand in sectors like Retail, Agriculture, and MSME. It will also encourage private capex."

Raghvendra Nath, MD, Ladderup Asset Managers, says, "With prices continuing to ease, RBI has cut the repo rate by 50 basis points in a move aimed at supporting the current macroeconomic momentum. While India's real GDP growth forecast for FY26 remained at 6.5 per cent, primarily due to geopolitical uncertainties affecting trade, inflation is expected to ease further to 3.7 per cent, supported by the early start of kharif season."

How Will Rate Cuts Impact Credit Growth?

Kumar says, "CRR cut will provide liquidity at the hands of banks. RBI is taking very proactive steps, keeping in view looming headwinds on credit growth. Lower rates will spur the retail demand, especially for affordable housing. Good monsoon coupled with lower rates augurs well for the agriculture sector. It will drive consumption and will boost rural demand."

CRR is the percentage of deposits banks need to keep with the RBI. The apex bank uses CRR as a monetary policy tool to maintain cash flow in the system and safeguard against liquidity risk. The decisions regarding Repo and CRR in the MPC June meeting mean more liquidity and lower interest rates.

Nath says, "The RBI's decision to gradually reduce the CRR in four equal tranches of 25 basis points over this year is likely to enhance liquidity in the system and lower the cost of funds for banks leading to lowering cost for borrowers and thus support private investment and domestic consumption."

Anup Agrawal, CEO and Co-Founder of Kiwi, adds, "The RBI's 50 bps rate cut is a strong signal of its intent to support credit-led consumption. Such bold moves have historically been reserved for periods of economic reset and this could mark the beginning of a fresh credit cycle. The reduced cost of funds is expected to benefit card issuers, enabling them to expand access and offer more attractive credit products."

In short, a reduced repo rate would benefit borrowers, and a reduced CRR requirement would benefit the banks.

What You Should Not Ignore If You Are A Borrower?

Prashant Mishra Founder and CEO, Agnam Advisors, a Securities Exchange Board of India (Sebi) registered investors advisor, highlights this important point, "The Reserve Bank of India has delivered a bold move, cutting the repo rate by 50 basis points and slashing the CRR by 100 basis points. The RBI clearly wants to inject more liquidity and drive credit growth. This is welcome news for borrowers, especially those on floating-rate loans, as EMIs are likely to fall."

But quickly, he cautions borrowers, adding, "Let's be clear, not all banks will pass on the benefit immediately. Many lenders tweak spreads or delay rate transmission to protect their margins. So don't just sit back and wait – be proactive."

So, while the MPC's announcement has boosted the sentiments in the credit space, what a borrower should remember is the transmission period on their bank's interest rate and if the bank is not reducing the rate or has a long time leg to pass on the rate to the borrower, explore the option to reduce loan cost.