National/ Business Desk
6 December
Sandeep Dhand Ludhiana
Journalist & Research Analysist
The Reserve Bank of India (RBI) has taken an important decision to support India’s economic growth. Ignoring concerns about the falling value of the rupee, the RBI has reduced the repo rate by 25 basis points (bps), bringing it down to 5.25%. This decision comes at a time when India’s economy is performing strongly, with GDP growth reaching 8.2% in the second quarter—the highest level in six quarters.
This cut in the repo rate is expected to make loans cheaper for people and businesses. Home loans, auto loans, personal loans and commercial loans may soon see lower interest rates, giving direct financial relief to millions of citizens.
Why Did the RBI Cut the Repo Rate?
The RBI Governor, Sanjay Malhotra, announced the fifth bi-monthly monetary policy of the current financial year. The Monetary Policy Committee (MPC) unanimously decided to reduce the repo rate by 25 bps, keeping a neutral stance.
Two major reasons influenced this decision:
- Inflation Under Control
Retail inflation based on the Consumer Price Index (CPI) has stayed below the government’s required lower limit of 2% for the last three months. Lower inflation gives RBI room to cut interest rates. - Strong Economic Growth
India recorded an impressive 8.2% GDP growth in the second quarter. This strong performance prompted the RBI to revise the economic growth estimate for the full financial year from 6.8% to 7.3%.
What About the Falling Rupee?
Even though the rupee recently crossed ₹90 per US dollar, reaching a historic low, the RBI decided that supporting growth was more important at the moment. The weak rupee can make imports costlier and may increase inflation later, but for now, the focus is on boosting investment and demand.
How Does a Lower Repo Rate Help People?
A cut in repo rate means banks can borrow money from the RBI at a cheaper rate. Because most loans are now linked to the Repo Rate Linked Lending Rate (RLLR), banks pass on this benefit to customers.
Here’s how different loans will become cheaper:
- Home Loans Become Cheaper
People planning to buy or build a home will benefit directly. EMIs will reduce for existing borrowers, and new customers will get lower interest rates.
- Auto Loans Get Easier
Buying a car, bike, or commercial vehicle will become more affordable with reduced interest rates.
- Personal Loans Turn Cheaper
Unsecured loans such as personal loans, credit lines and consumer loans may see lower interest rates.
- Business and Commercial Loans Benefit
Companies and small businesses will get loans at cheaper rates, helping them expand and invest. This supports economic activity and job creation.
How Much Will You Save?
If your home loan interest rate was 8.75%, it may now drop to around 8.50% after a 25 bps cut.
For long-term loans, even a small cut in interest can save thousands of rupees every year.
For example:
On a 20-year home loan, a 25 bps reduction can reduce EMIs significantly.
Bigger loans mean bigger savings.
Conclusion
The RBI’s decision to cut the repo rate is a major step to support India’s economic growth. It brings relief for borrowers, reduces loan costs and encourages investment. While the falling rupee remains a concern, the overall impact of this decision is expected to be positive for households, businesses and the economy.