RBI Slashes Repo Rate By 25 bps; Home, Personal And Vehicle Loans To Get Cheaper, GDP Growth Cut To 6.5%
RBI Slashes Repo Rate By 25 bps; Home, Personal And Vehicle Loans To Get Cheaper, GDP Growth Cut To 6.5%
In a significant policy move aimed at supporting economic growth, the Reserve Bank of India’s (RBI) six-member Monetary Policy Committee (MPC) has slashed the repo rate by 25 basis points (bps), bringing it down to 6 per cent. This decision, announced during the first bi-monthly monetary policy review on April 9, 2025, was accompanied by a shift in the monetary policy stance from “neutral” to “accommodative,” signaling the potential for further rate cuts in the near future.
This reduction in the key policy rate is set to make home, personal, and vehicle loans more affordable, with deposit rates also expected to trend lower in the coming days. Additionally, the MPC revised India’s GDP growth projection for 2025-26 downward to 6.5 per cent from the earlier estimate of 6.7 per cent. Retail inflation for the fiscal year is projected at 4 per cent.
The committee’s decision comes amidst mounting global uncertainties, including escalating trade tensions following the imposition of reciprocal tariffs by US President Donald Trump. Concerns over rising inflation, global trade frictions, and a potential slowdown in the global economy prompted the RBI’s cautious approach. “The global economic outlook is fast changing. FY26 has started on an anxious note, and some global trade frictions are coming true,” RBI Governor Sanjay Malhotra said.
This is the second consecutive repo rate cut by the MPC. In its February 2025 monetary policy meeting, the committee had also cut the repo rate by 25 bps – the first reduction in nearly five years – bringing it down to 6.25 per cent at that time. That move was driven by easing inflation levels and concerns about decelerating growth.
The repo rate is the interest rate at which the RBI lends money to commercial banks to meet short-term liquidity requirements. A reduction in this rate results in a direct and proportional reduction in external benchmark lending rates (EBLR), leading to lower equated monthly instalments (EMIs) for borrowers.
With the latest 25 bps rate cut, lending rates linked to the repo rate will fall by an equivalent margin, easing the financial burden on borrowers of home and personal loans. In February, banks had responded to the RBI’s policy action by adjusting their EBLR rates accordingly.
Further rate cuts may also be seen in loans tied to the marginal cost of funds-based lending rate (MCLR), where full transmission of the cumulative 250 bps repo rate hike between May 2022 and February 2023 has yet to be achieved. During that period, the one-year MCLR of banks increased by 178 bps.
Inflation data from January and February 2025 averaged 3.9 per cent, below the RBI’s projected range for the January-March 2025 quarter. The RBI has pegged consumer price-based inflation (CPI) at 4.8 per cent for the fourth quarter of FY25.
The central bank’s latest policy steps reflect a delicate balancing act – addressing the risks of global economic volatility while ensuring credit remains accessible and affordable to support domestic economic momentum.
