The repo rate cut is expected to lower interest rates on loans, particularly benefiting homebuyers and other borrowers.
In a widely-anticipated move, the Reserve Bank of India (RBI) has announced a 25-basis point (bps) reduction in the repo rate, marking a significant step to ease borrowing costs and stimulate economic growth. The decision, unveiled by RBI Governor Sanjay Malhotra on Friday, February 7, follows extensive deliberations by the Monetary Policy Committee (MPC).
The repo rate cut is expected to lower interest rates on loans, particularly benefiting homebuyers and other borrowers. This decision comes against the backdrop of a slowing economy, moderating inflation, tight liquidity conditions, and ongoing stock market volatility. The MPC move aligns with market expectations, especially after the Union Budget emphasized consumption-driven growth.
Analysts at SBI Research had earlier projected a 25-bps reduction in February, with a cumulative cut of at least 75 bps over the current cycle. While some experts speculated that the RBI might delay the rate cut due to liquidity constraints, the central bank opted for immediate action to support economic recovery.
Implications for Borrowers
“The rate cut is expected to translate into lower equated monthly instalments (EMIs) for home loans, auto loans, and personal loans, making credit more affordable for consumers. Banks and financial institutions are likely to pass on the benefits by reducing their lending rates, which could ease financial pressures for both existing and new borrowers. This is particularly advantageous for first-time homebuyers and existing borrowers.”
Let’s understand how it impacts EMIs!
Suppose your home loan interest rate is 8.75% and it gets reduced to 8.50% after the repo rate cut. What impact will it have on your EMIs? Below is a comparison of how a 25 bps rate cut impacts loan EMIs for a ₹50-lakh home loan over a 20-year tenure:
| Interest Rate | EMIs | Per Month Savings |
| 8.75% | 44,186 | Rs 791 |
| 8.50% | 43,391 |
Economic Impact
The RBI decision underscores its commitment to balancing inflation control with growth support as laid down in the Union Budget 2025 where taxable income up to Rs 12 lakh was kept outside the tax liability. By reducing the repo rate, the Central bank aims to foster financial stability while encouraging investment and consumption. This move is expected to significantly boost the real estate market and broader economic activity in the coming months.
As the economy navigates through a period of uncertainty, the RBI’s proactive approach signals a focus on sustaining momentum in key sectors. For businesses and consumers alike, the rate cut presents an opportunity to capitalise on more favourable borrowing conditions, potentially driving growth and recovery in the near term.
What Should Homebuyers Do Now?
For homebuyers, the repo rate cut presents a timely opportunity to evaluate their options. Here’s what potential and existing homebuyers should consider:
1. New Buyers: Lock in Lower Rates
If you’ve been considering purchasing a home, this is an ideal time to explore home loan options. With banks expected to reduce lending rates, new borrowers can secure loans at more affordable interest rates, leading to lower EMIs and overall borrowing costs.
2. Existing Borrowers: Consider Refinancing
If you already have a home loan, check with your bank to see if they’ve passed on the rate cut benefits. If not, consider refinancing your loan with another lender offering lower interest rates. This could significantly reduce your monthly payments and interest burden over the loan tenure.
3. Negotiate with Developers
The real estate market is likely to see increased demand due to lower borrowing costs. However, developers may also be eager to close deals. Use this opportunity to negotiate better prices or additional amenities when purchasing a property.
4. Assess Your Financial Readiness
While lower interest rates make home loans more attractive, ensure you’re financially prepared for the long-term commitment. Evaluate your savings, credit score, and repayment capacity before making a decision.
5. Monitor Market Trends
Keep an eye on how banks and financial institutions respond to the rate cut. Some may offer additional benefits or discounts to attract borrowers. Comparing offers from multiple lenders can help you secure the best deal.
In conclusion, the repo rate cut by the RBI is a welcome development for homebuyers, offering a chance to make homeownership more affordable. Buyers can now maximise the benefits of this policy shift.
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