Days after, FM Nirmala Sitharaman, in her budget speech, announced that individuals earning up to Rs 12 lakh would not have to pay Income tax. In another relief for taxpayers, especially home loan borrowers, the RBI has reduced the repo rate by 25 basis points from 6.5% to 6.25% in its monetary policy meeting held on Friday. The last time the RBI slashed the repo rate was in May 2020.
What is Repo Rate?
The Repo Rate or Repurchase Agreement or Repurchasing Option is the interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks. Repo rate is an instrument used by RBI to control inflation.
Now, how will the cut in Repo Rate impact you?
According to the Economic Times, A reduction of interest rate by 0.25% means that home loan borrowers will have two options: either to go for a reduction in EMIs or reduce the tenure of the loan, which will help them clear their home loan outstanding faster.
Supposing the loan amount is Rs 30 lakh for a period of 20 years if the interest rate falls from 9% to 8.75%, the EMI will reduce from Rs 26,992 to Rs 26,551, which is a fall by Rs 480 or 1.78%. Experts believe the rate cut will enhance affordability and boost home sales.
However, there is a catch here. According to CNBC TV18, Home loan borrowers with floating rates or new loans stand to benefit from the repo rate cut, with potential savings on EMIs. However, those with fixed-rate home loans won’t see a reduction unless they refinance.
The effectiveness of the repo rate cut depends on how banks adjust their lending rates. Borrowers may not see immediate relief if banks delay passing on the benefits. Meanwhile, The RBI, in its monetary policy statement, has also said that India’s economic growth is expected to remain robust in the financial year 2025-26, with real GDP projected to expand by 6.7%.
For FY 2025, it has revised its GDP growth projection from 7% to 6.4% . Speaking on Inflation, RBI governor Sanjay Malhotra said: Inflation had declined, supported by a favorable food outlook and the continued transmission of past monetary policy actions. “It is expected to further moderate in 2025-26, gradually aligning with the target,” he said.
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