Home, auto and other loans are likely to cost less as the Reserve Bank of India (RBI) cut interest rates on Wednesday for a second consecutive time and signalled more easing to come as it sought to bolster the economy that is facing further pressure from damaging US tariffs. The Monetary Policy Committee (MPC), consisting of three central bank members and an equal number of external members, voted unanimously to cut the repurchase or repo rate by 25 basis points to 6 per cent. It had reduced rates by an equal measure in February — the first cut since May 2020.
The repo rate is the rate at which the RBI lends money to banks to meet their short-term funding needs. With a 25 bps cut in the repo rate, all external benchmark lending rates (EBLR) linked to it will come down. And if the banks fully pass on this to the borrowers, equated monthly instalments (EMIs) on home, auto and personal loans will decline by 25 bps.
The move lowers borrowing costs to the lowest level since November 2022, amid easing inflation and a fall in oil prices.
RBI changed its policy stance to “accommodative” from “neutral”, indicating the possibility of more rate cuts in future, Governor Sanjay Malhotra said while announcing the MPC decisions.
The rate cut came on a day when the full 26 per cent additional tariffs on Indian goods exported to the US came into effect. The US tariffs exacerbate uncertainties, with some economists predicting a 20-40 basis point drag on Indian GDP growth in the current fiscal year that started on April 1.
RBI also lowered its estimate for economic growth to 6.5 per cent for 2025-26 fiscal year from 6.7 per cent earlier. The inflation projection was also lowered to 4 per cent from 4.2 per cent, keeping it within the target range of 2-6 per cent.