The stage is set for home loan and auto loan rates in India to fall in the next few days.
In the recent RBI Monetary Policy Committee (MPC) meeting, the repo rate — which influences bank loan rates — was cut by 50 basis points or 0.50 percent.
RBI Governor Sanjay Malhotra announced the decisions made after the three-day MPC meeting. Under his leadership, the MPC has met three times and decided to lower the repo rate each time.
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Repo rate down to 5.50% in 6 months
In February and April 2025 meetings, the repo rate was cut by 25 basis points each. This means the repo rate has dropped by a full 1 percent over six months, now at 5.50 percent.
The RBI Governor hopes banks will pass this rate cut benefit on to the public.
Loan EMI Comparison (₹20 Lakh loan for 20 years)
| Description | Before Cut | After 0.5% Cut | Benefit |
|---|---|---|---|
| Loan Amount | ₹20 Lakh | ₹20 Lakh | — |
| Tenure | 20 years | 20 years | — |
| Interest Rate | 8% | 7.5% | 0.5% |
| EMI | ₹16,729 | ₹16,112 | ₹617 |
| Total Interest | ₹20.14 Lakh | ₹18.66 Lakh | ₹1.48 Lakh |
| Total Payment | ₹40.14 Lakh | ₹38.66 Lakh | ₹1.48 Lakh |
Note: EMI and interest amounts are approximate and may differ by bank.
What will happen next?
After this 0.50 percent one-time cut, loan rates for home loans, auto loans, personal loans, and other banking loans are expected to fall quickly.
Though RBI reduced the repo rate by 0.50 percent in February and April, banks have only lowered loan rates by 0.17 percent on average so far.
This shows banks haven’t fully passed on the benefits to customers yet. But after this latest cut, more reductions can reach the public.
What is the repo rate?
The repo rate is the interest rate at which commercial banks borrow money from RBI for the short term.
Banks use these funds to offer loans to customers. So, when the RBI lowers the repo rate, loans become cheaper. When the repo rate rises, loans get more expensive.
Lower loan rates are expected to boost demand for real estate and automobiles, which will positively impact the economy.
Economic growth to gain speed
Governor Malhotra said that this 0.50 percent cut will free up an extra ₹2.5 lakh crore in the banking system for loans.
Experts view this cut as RBI’s sign that the government supports faster economic growth.
Inflation may ease
Globally, growth might slow down after the US started a trade war, but India’s economy is expected to grow at 6.5 percent.
The RBI Governor said India’s growth rate for 2025-26 will be 6.5 percent, keeping it the world’s fastest-growing economy for the third year in a row. He also mentioned that inflation’s impact will be less this year.