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The Reserve Bank of India (RBI) has announced a 25 basis point reduction in the repo rate, lowering it from 6.25% to 6%. This move is expected to ease borrowing costs for individuals and businesses. RBI Governor Sanjay Malhotra made the announcement during the first Monetary Policy Committee (MPC) meeting of the fiscal year 2026, held from April 7 to 9. This marks the second consecutive rate cut following a similar reduction in February.
The repo rate is the interest rate at which the RBI lends money to commercial banks for short-term borrowing, usually against government securities. It is a key tool used by the central bank to manage inflation and control liquidity in the economy.
The RBI cuts the repo rate to inject more liquidity into the system and stimulate economic activity, especially when inflation is under control. For FY26, the RBI has projected the Consumer Price Index (CPI) inflation at 4%, comfortably within its target range of 2-6%. Global uncertainties, particularly trade tensions triggered by US President Donald Trump’s tariffs, have also influenced the decision, as these global risks pose threats to growth and impact India’s exports.
With the repo rate cut, banks and financial institutions can borrow funds from the RBI at a lower cost, which could lead to reduced interest rates on home loans, auto loans, and personal loans. However, the actual reduction in Equated Monthly Installments (EMIs) will depend on how quickly and to what extent individual banks pass on the benefits to consumers.
While borrowers may benefit from lower rates, those with fixed deposits (FDs) could see a downside. As lending rates decrease, banks may also cut interest rates on deposits to protect their margins. New FD investors may find returns less attractive compared to those who locked in higher rates earlier. If you plan to invest in FDs, it may be wise to do so before banks revise rates downward.
For personal loan borrowers, those with fixed-rate loans are unlikely to see changes in their EMIs. However, if you are considering taking a new personal loan, the rate cut could result in lower interest rates and more affordable repayments.
Governor Sanjay Malhotra stated that the Indian economy is on track for steady growth, projecting GDP growth at 6.5% for FY 2025-26. The economy is expected to grow at 6.5% in Q1, 6.7% in Q2, 6.6% in Q3, and 6.3% in Q4. The agriculture sector is showing promise due to healthy reservoir levels and robust crop production. The manufacturing and services sectors are gradually recovering, and urban consumption is on the rise. Investment activity is increasing, backed by strong corporate and bank balance sheets, along with continued government focus on infrastructure.
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