Millions of borrowers across India are set to receive some financial relief after the Reserve Bank of India (RBI) announced a 25 basis point repo rate cut, reducing the benchmark lending rate to 5.25%. The Monetary Policy Committee (MPC), chaired by Governor Sanjay Malhotra, voted unanimously for the move, projecting a more comfortable inflation outlook and stronger economic growth for 2025–26.
Unlike previous policy announcements that focused heavily on macroeconomic indicators, Friday’s RBI policy primarily centered on easing consumer pressure, boosting credit growth and making both home and auto loans more affordable.
Loan EMIs to Become Cheaper Across the Board
The reduction in the RBI repo rate—the rate at which the central bank lends short-term funds to commercial banks—directly influences the interest rates of retail loans. Financial experts say borrowers can expect revised loan rates to reflect in their next billing cycles or within 1–2 months depending on the bank.
Sectors likely to see immediate benefits include:
- Home Loans: ₹30–₹300 reduction for every ₹10 lakh borrowed (depending on tenure)
- Auto Loans: Lower EMI burden likely from January 2026
- Personal Loans: Slight decrease due to floating rates
- Education Loans: Relief for long-tenure borrowers
Banking sector officials have indicated that the rate transmission may be faster this time due to the RBI’s liquidity infusion and MPC repo rate guidance.
Why the RBI Delivered a Consumer-Focused Rate Cut
Governor Sanjay Malhotra highlighted that retail inflation has fallen far below the central bank’s tolerance range, driven by lower food prices and easing global commodity pressures. October 2025 saw inflation dip to 0.3%, the lowest in years.
The RBI now expects:
- FY2025–26 inflation: Revised downwards to 2%
- Q1 FY2026–27 inflation: Projected at 3.9%
- GDP growth: Upgraded sharply to 7.3%
The sharp fall in inflation gave the central bank what Malhotra described as “clear policy space” to ease the RBI policy rate without fear of stoking price pressures.
Liquidity Measures to Strengthen Banks’ Ability to Lend
Alongside the repo rate cut, the central bank introduced several supportive liquidity measures:
- ₹1 lakh crore Open Market Operation (OMO) bond purchases
- $5 billion USD/INR Buy-Sell Swap for durable liquidity
- SDF lowered to 5%, MSF lowered to 5.5%
These steps are designed to help banks pass on rate cuts more quickly and stimulate credit demand, especially from small businesses and first-time homebuyers.
Bank economists say the RBI has taken a “holistic monetary approach” that will support both consumer lending and capital spending in 2026.
RBI’s Policy Stance Remains Neutral Despite Rate Cut
The MPC retained its neutral stance, a sign that future moves will depend entirely on upcoming inflation data and economic stability. This stance gives the RBI flexibility—allowing it to cut rates further if needed or hold steady if global uncertainties intensify.
Governor Malhotra noted that India continues to face risks from:
- Geopolitical tensions
- Divergent global monetary policy cycles
- Volatile commodity prices
- Fluctuating capital flows
However, India’s domestic conditions remain strong enough to support an accommodative MPC repo rate decision.
Consumers, Developers and MSMEs Welcome the Move
Real estate developers applauded the decision, saying lower rates would boost housing demand at a time when urban markets are witnessing strong sales. Auto manufacturers also expect increased footfall as borrowing becomes more affordable.
Small businesses—particularly MSMEs relying on short-term working capital credit—said the rate cut will reduce operational pressure and improve cash flow in the first quarter of 2026.
Borrowers Advised to Monitor Bank Announcements
Financial planners urge borrowers to:
- Compare revised lending rates of their banks
- Re-negotiate spreads on floating-rate home loans
- Consider part-prepayments to reduce interest burden
- Monitor EMI adjustments after the RBI repo rate announcement
Analysts believe retail lending may accelerate meaningfully by February–March 2026 as the rate cut fully transmits through the banking system.
