The Reserve Bank of India’s recent decision to cut the repo rate by 50 basis points to 5.5% is set to reshape the financial landscape for both borrowers and savers across the country.
This move, the third consecutive reduction since February 2025, is aimed at boosting economic growth as inflation remains comfortably below the central bank’s 4% target.
For home loan borrowers, the impact is immediate and positive. Banks are expected to pass on the benefits of the lower repo rate by reducing interest rates on home loans, especially those linked to the repo-based lending rate. For instance, a borrower with a ₹50 lakh home loan over 20 years could see their monthly EMI drop by over ₹1,500.
Specifically, if the interest rate falls from 8.5% to 8% following the rate cut, the EMI would decrease from approximately ₹43,391 to ₹41,822, resulting in annual savings of nearly ₹19,000. This reduction offers much-needed relief to households facing high living costs and encourages new homebuyers to enter the market.
However, the news is less favorable for fixed deposit (FD) investors. With the cost of borrowing for banks decreasing, deposit rates are also trending downward. Since February 2025, banks have already slashed FD rates by 30 to 70 basis points, and further reductions are anticipated as the transmission of the repo rate cut continues.
This means that new FDs will offer lower returns, and savers—particularly retirees who rely on interest income—will need to reassess their investment strategies. While existing FDs will retain their contracted rates until maturity, renewals are likely to fetch lower interest rates.
The central bank’s policy stance has shifted from ‘accommodative’ to ‘neutral’, signaling a careful balance between supporting growth and managing inflation. The cash reserve ratio was also reduced by 100 basis points, injecting additional liquidity into the banking system and further encouraging banks to lend.
