The Reserve Bank of India has announced a cut of 25 basis points on Wednesday. With this, the repo rate has now come down to 6 percent. This is the second time in the year 2025 that the RBI has cut the repo rate. Earlier, in the monetary policy meeting of the central bank held in February, a reduction of 25 basis points or say 0.25 percent was made. Due to this, the repo rate came down from 6.50 to 6.25 percent. After the cut today on 9 April, it has come down to 6 percent.
How Will the Repo Rate Cut Affect You?
If banks get loans from RBI at a cheaper interest rate, then the bank will also give loans to customers at a lower interest rate. If the repo – rate is low, then banks will have to spend less to raise funds. On the other hand, if the repo rate increases, banks will have to spend more to raise money. As a result, banks will give loans to customers at a higher interest rate. Repo – rate can be understood as a benchmark.
EMI Relief for Floating Rate Loan Borrowers: When the repo rate is reduced, the interest on home loan, car loan, personal loan is reduced. When the interest is reduced, it is obvious that it will affect the EMI and the burden of EMI on the common man will be reduced to a great extent.
Limited Benefit for Depositors
According to a report by Money control, experts believe that due to the reduction in repo rate, banks will reduce the interest on loans. This will reduce the EMI of those customers who have taken home loan on floating rate. That is, the interest rate which is not fixed and keeps changing according to the market conditions. Apart from this, people planning to buy a home will also get the benefit of this. Currently, the interest on home loan is between 8.10-9.5 percent. After the reduction in repo rate today, it may decrease. Not only home loan, the reduction in repo rate will also affect the interest on car loan.
Why does RBI reduce the repo rate?
Repo rate is a powerful tool that the Reserve Bank uses according to the situation. For example, when the economy goes through a bad phase, RBI reduces the repo rate to increase the money flow for recovery. Reducing the repo rate will reduce the interest on bank loans, due to which people will take loans from banks for their personal work or businesses, this will accelerate economic growth as both spending and investment will increase. Reducing the repo – rate helps in supporting economic growth as well as maintaining price stability.
RBI’s Focus Shifts from Inflation to Growth
In February, RBI had announced a reduction of 0.25 percent in the repo – rate, after which the repo rate was reduced from 6.50% to 6.25%. In June 2023, the repo rate was increased to 6.50% by the RBI. That is, this change was made in 5 years.
The Reserve Bank of India’s target to control inflation is between 2% to 6%. At present, India remains in this band. This means that now the focus of RBI will be on boosting growth. This will be a relief news for small businesses, startups and the general public. It is worth noting that in June 2023, the repo – rate was increased to 6.50 percent by the RBI. That is, this change was made in five years.
Loan takers will benefit
However, the chances of any change in the rate of deposit in the bank are very low. That is, the home loan borrowers may get benefit from the bank, but the depositors are not going to get the benefit.
