Summary of this article
RBI keeps repo rate unchanged at 5.25 per cent
Floating-rate loan EMIs remain largely unchanged currently
FD rates may stay stable in near term
The repo rate, currently kept steady at 5.25 per cent by the latest Monetary Policy Committee (MPC) meeting, is the rate at which the Reserve Bank of India (RBI) lends money to commercial banks. A change in it hits your loan equated monthly instalments (EMI) directly.
When banks need money, they borrow from the RBI at the repo rate. If the repo rate goes up, the bank's borrowing cost rises, and it charges the borrowers more on loans. If it comes down, loans get cheaper.
Which Loans Are Affected And Which Are Not
Not all loans move with the repo rate equally. Loans based on the External Benchmark Lending Rate (EBLR) are directly linked to the central bank's benchmark rate, the repo rate. If RBI hikes the repo rate, banks need to revise their EBLR promptly, and borrowers on these loans perceive the shift first.
Loans linked to the Marginal Cost of Funds-Based Lending Rate (MCLR) are affected too, but more slowly. MCLR depends on a bank's overall cost of funds, and a repo rate change feeds into it gradually. Interest rates for such loans may or may not change, but only after the annual or half-annual revisions conducted by the banks.
Fixed-rate loans are unaffected. The rate you signed up for stays the same regardless of what the RBI does.
What A Rate Cut Means For Your EMI
Say you have a home loan of Rs 50 lakh for 20 years at 8.25 per cent. Your EMI is Rs 42,603, and your total repayment over the tenure adds up to Rs 1,02,24,788.
If the RBI cuts the repo rate by 25 basis points (bps) to 5 per cent and your bank passes it on fully, your rate drops to 8 per cent. Your EMI falls to Rs 41,822. That is Rs 781 less every month, Rs 9,372 saved in a year, and Rs 1.87 lakh saved over 20 years.
Saurabh Bansal, a Securities and Exchange Board of India (SEBI)-registered investment advisor and founder of Finatwork Investment Advisor, said: "By keeping rates unchanged, the RBI has prioritised optionality over committing to a clear easing or tightening path. For borrowers, this means no immediate relief or pressure on floating-rate loan EMIs."
What A Rate Hike Means For Your EMI
On the same loan, a 25 bps hike takes the repo rate to 5.5 per cent. Your home loan rate moves to 8.5 per cent, and the EMI goes up to Rs 43,391. That is Rs 788 more every month, Rs 9,456 extra in a year, and Rs 1.89 lakh more over the full tenure.
What Borrowers Should Keep In Mind
Bansal added, "While rate cuts generally support affordability and rate hikes increase repayment costs, the actual impact depends on how effectively banks transmit policy changes. Ultimately, borrowers are better served by maintaining comfortable repayment buffers than by relying on interest rate movements to improve affordability."
