RBI Slashes Repo Rate by 50 bps to 5.50% in Major Policy Shift; Home Loan EMIs to Drop
In a bold move aimed at supporting economic growth, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has announced a significant 50 basis point cut in the repo rate, bringing it down to 5.50%.
This marks the third consecutive rate cut since February 2025 and reflects the central bank’s growing confidence in the inflation outlook.
With inflation falling below the 4% benchmark for the past three months, the MPC’s decision was driven by the need to stimulate borrowing and investment amid global uncertainties, including ongoing trade tensions with the United States.
Key Highlights of the June 2025 RBI MPC Meeting:
- Repo Rate: Slashed by 50 bps to 5.50%
- Cash Reserve Ratio (CRR): Reduced by 100 bps to 3%, injecting ₹2.5 lakh crore into the banking system
- Policy Stance: Shifted from ‘accommodative’ to ‘neutral’
- GDP Growth Projection (FY25): Maintained at 6.5%
- Inflation Forecast: Revised lower to 3.7%
Rationale Behind the Rate Cut
The MPC, chaired by RBI Governor Sanjay Malhotra, cited cooling inflation, particularly the sharp decline in food prices, as the primary driver for the larger-than-expected rate reduction.
Retail inflation (CPI) fell to 3.2% in April, the lowest level seen since July 2019, after already moderating to 3.3% in March. This sustained decline supports the MPC’s belief that inflation is firmly under control and well within the RBI’s Flexible Inflation Targeting (FIT) framework of 4% ± 2%.
“With core inflation staying benign and CPI aligning with the target over the last three months, the MPC believes a frontloaded rate cut is essential to sustain momentum in growth,” Governor Malhotra said.
Implications for Borrowers and Savers
The rate cut is good news for borrowers. As the repo rate determines the External Benchmark Lending Rate (EBLR), which most banks use to set floating loan interest rates, EMIs on home, auto, and personal loans are expected to fall by around 50 bps.
For every ₹1 lakh loan, this could translate into a monthly savings of ₹800 to ₹1,200, improving liquidity for consumers.
However, savers and depositors may feel the pinch. With banks expected to pass on the benefits of lower repo rates by reducing both MCLR and deposit interest rates, returns on fixed deposits and savings accounts, which—already hovering near historic lows of 2.7%, are likely to fall further.
Boost for Bond Markets
The move is also seen as a positive for the bond market. Lower interest rates tend to drive up bond prices, and government securities may see a further drop in yields. This is likely to enhance returns for existing bondholders and increase investor interest in fixed-income instruments.
Growth Outlook Amid Global Uncertainty
Despite lingering concerns over external economic headwinds, particularly from evolving trade relations with the United States, the RBI has retained its GDP growth forecast at 6.5% for the current financial year.
The substantial liquidity boost via CRR reduction and lower borrowing costs is expected to provide a much-needed lift to private consumption and investment, critical for sustaining the growth momentum.
Looking Ahead
Economists believe that if inflation continues to stay under control, the RBI may consider further rate cuts in upcoming policy reviews.
With price stability achieved and economic activity needing support, the June 2025 MPC decision marks a clear signal that growth revival is the current policy priority.
Borrowers can look forward to lighter EMI burdens, but depositors may need to reassess their savings strategies as interest income continues to erode.
