Repo Rate Update : In a much-awaited move, the Reserve Bank of India (RBI) has announced a cut in the repo rate, signaling a wave of financial relief for millions of borrowers. This decision is expected to reduce the cost of borrowing, directly benefiting those with home loans, car loans, and other EMIs tied to floating interest rates. Amid global economic fluctuations and domestic inflation moderation, this step is aimed at boosting credit demand and consumer spending.
Repo Rate Update : What is the Repo Rate and Why It Matters?
The repo rate is the rate at which the RBI lends money to commercial banks. A cut in this rate makes borrowing cheaper for banks, which in turn can reduce interest rates on loans for consumers.
- The current repo rate has been reduced by 25 basis points.
- It now stands at 6.25%, down from 6.50%.
- This is the first repo rate cut in over a year.
- Loan interest rates are expected to decline in the coming months.
- The move aims to boost demand in the housing and automobile sectors.
Impact on Home Loan EMIs
Home loan borrowers, especially those with floating interest rates, are set to benefit significantly from the rate cut. Most banks and NBFCs link their loan rates to the repo rate or external benchmark lending rate (EBLR), making the effect of rate cuts pass directly to borrowers.
Estimated EMI Reduction for Home Loans
| Loan Amount | Tenure | Previous EMI @ 9% | New EMI @ 8.75% | Monthly Savings | Annual Savings |
|---|---|---|---|---|---|
| ₹30 Lakh | 20 Years | ₹26,992 | ₹26,473 | ₹519 | ₹6,228 |
| ₹40 Lakh | 20 Years | ₹35,990 | ₹35,297 | ₹693 | ₹8,316 |
| ₹50 Lakh | 20 Years | ₹44,987 | ₹44,121 | ₹866 | ₹10,392 |
| ₹60 Lakh | 20 Years | ₹53,984 | ₹52,946 | ₹1,038 | ₹12,456 |
| ₹70 Lakh | 20 Years | ₹62,981 | ₹61,770 | ₹1,211 | ₹14,532 |
| ₹80 Lakh | 20 Years | ₹71,979 | ₹70,594 | ₹1,385 | ₹16,620 |
| ₹90 Lakh | 20 Years | ₹80,976 | ₹79,418 | ₹1,558 | ₹18,696 |
| ₹1 Crore | 20 Years | ₹89,973 | ₹88,242 | ₹1,731 | ₹20,772 |
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Car Buyers to Benefit from Lower Auto Loan EMIs
Car loans are also expected to become cheaper following the repo rate cut. This could drive up sales in the automobile sector, especially in entry-level and mid-segment vehicles.
EMI Comparison for Car Loans
| Car Price | Loan Tenure | EMI @ 10% Interest | EMI @ 9.75% Interest | Monthly Savings | Total Savings (5 Years) |
|---|---|---|---|---|---|
| ₹6 Lakh | 5 Years | ₹12,749 | ₹12,627 | ₹122 | ₹7,320 |
| ₹8 Lakh | 5 Years | ₹16,998 | ₹16,836 | ₹162 | ₹9,720 |
| ₹10 Lakh | 5 Years | ₹21,248 | ₹21,045 | ₹203 | ₹12,180 |
| ₹12 Lakh | 5 Years | ₹25,498 | ₹25,254 | ₹244 | ₹14,640 |
| ₹14 Lakh | 5 Years | ₹29,747 | ₹29,463 | ₹284 | ₹17,040 |
| ₹16 Lakh | 5 Years | ₹33,997 | ₹33,672 | ₹325 | ₹19,500 |
| ₹18 Lakh | 5 Years | ₹38,247 | ₹37,881 | ₹366 | ₹21,960 |
| ₹20 Lakh | 5 Years | ₹42,496 | ₹42,090 | ₹406 | ₹24,360 |
Which Banks Are Likely to Pass on the Rate Cut First?
Most major public and private sector banks are expected to respond to the repo rate cut by adjusting their lending rates in the next few weeks. However, the speed and extent of the reduction may vary depending on each bank’s internal policies.
- SBI and HDFC Bank are usually the first to revise home loan rates.
- ICICI Bank, Axis Bank, and Punjab National Bank may follow shortly.
- Banks may revise their Marginal Cost of Funds based Lending Rate (MCLR) or External Benchmark Lending Rate (EBLR) accordingly.
Boost for the Housing and Auto Sectors
The reduction in borrowing costs is a strategic move to stimulate housing demand and revive the real estate sector. Lower EMIs make homes more affordable and encourage first-time buyers to enter the market.
- Real estate developers have welcomed the move.
- Car manufacturers expect a rise in retail bookings.
- Affordable housing projects may see more traction due to improved loan accessibility.
Expert Reactions and Market Outlook
Economists and financial experts have broadly welcomed the RBI’s decision, seeing it as a pro-growth step amid stable inflation conditions.
- RBI’s stance is accommodative, indicating scope for further cuts if inflation remains under control.
- Stock markets reacted positively to the news.
- Banking and real estate stocks saw a mild rally.
- Bond yields dropped, signaling increased investor confidence.
What Should Borrowers Do Now?
If you’re a borrower or planning to take a loan, now is a good time to evaluate your options. With EMIs set to decline, this repo rate cut can help you save significantly over the loan tenure.
Tips for Borrowers:
- Check if your loan is linked to the repo rate or EBLR.
- Consider refinancing if your current interest rate is high.
- Compare offers from different banks before switching or applying.
- Plan your loan amount and tenure smartly to maximize savings.
This article is intended for informational purposes only and does not constitute financial advice. Please consult with your financial advisor or bank representative before making any loan-related decisions. Loan rates and savings calculations may vary based on lender policies and borrower profiles.
