The Reserve Bank of India (RBI) has reduced the policy repo rate by 25 basis points (or 0.25%) to 6.00%, from previous rate of 6.25%. The revised policy repo rate comes into effect immediately. This is the second consecutive repo rate cut by RBI following a 0.25% reduction earlier this year in February 2025.
The repo rate is the interest rate at which the RBI lends money to commercial banks. A reduction in this key rate means lower borrowing costs for banks which in turn can benefit consumers with lower interest rates on loans and lower EMIs.
The decision was taken unanimously during the 54th meeting of the RBI’s Monetary Policy Committee (MPC) held from April 7 to 9, 2025 under the leadership of RBI Governor Sanjay Malhotra.
The Central bank has also changed its policy stance from ‘neutral’ to ‘accommodative’, in view of the concerns over international trade tensions emerging from U.S. President Trump’s tariff measures, changing global economic outlook, and its efforts to support domestic economic activity while maintaining inflation within the target band.
Speaking during a press conference after the MPC, RBI governor Sanjay Malhotra said that, “The growth projections have been revised downwards by 20bps due to policy and trade uncertainties”. “We will try to balance growth and inflation”, he further noted.
Highlights from RBI’s MPC:
- New Rates: The repo rate has been reduced to 6%, down from 6.25%. RBI has also adjusted the Standing Deposit Facility (SDF) rate under the Liquidity Adjustment Facility (LAF) to 5.75%. SDF rate is the rate RBI pays to banks for keeping surplus money. The Marginal Standing Facility (MSF) and bank rate i.e., the emergency borrowing window for banks to borrow money from RBI, has been adjusted to 6.25%.
- Inflation Outlook: The Consumer Price Index (CPI) inflation fell to 3.6% in February 2025, from 5.2% in December 2024, giving RBI room to reduce rates without risking rise in prices. As per RBI, the inflation is projected at 4% for the full year, under its target range of 2-6%.
- Growth Outlook: The GDP growth for 2025-26 is projected at 6.5%, a steady pace on par with 2024-25. RBI expects the GDP growth to stay stable during Q1-3 but slow down marginally in the fourth quarter to 6.3%. Rising rural demand, revival in urban consumption, increased government capital expenditure and healthy balance sheets of corporates and banks are expected to be the growth support drivers during the current fiscal as global trade disruptions continue to pose downward risks, RBI stated in its report.
How a Repo Rate Cut Impacts Consumers
Since a lower repo rate reduces the cost of funds for banks when RBI reduces policy rate, it has direct and indirect effects on consumers.
While banks often reduce the loan interest rates, it’s not guaranteed and the repo rate cut does not apply automatically to loans. The benefit of a lower repo rate largely depends on the type of loan you have. Loans linked to the external benchmark may reflect the change on the next reset date but the fixed-rate loans or loans linked to older systems like MCLR may take longer to adjust. Additionally, banks consider many factors such as their cost of deposits, liquidity position or financial conditions before adjusting the interest rates. So, the benefit to borrowers varies, and is not always certain.
- Loans become cheaper: Home loans, personal loans and vehicle loans may become cheaper if banks reduce the lending rates following the repo rate reduction. Loans linked directly to an External Benchmark Lending Rate (EBLR), especially home loans after October 2019, would likely see a quicker implementation of this rate cut on the next reset date. But the rate cut benefit is not immediate for the loans linked to the older systems such as Marginal Cost of Funds Based Rate (MCLR) or base rate.
- Reduced EMIs: Existing borrowers may see reduced EMIs if their loans are taken on a floating interest rate. The loans taken on fixed interest rates would not benefit from the policy revision.
- The repo rate cut also helps in encouraging consumer spending as loans become cheaper, boosting the economy.
- However, there is another side of the coin too as the repo rate cut may also result in lower interest rates on fixed deposits, reducing returns on savings for savers and retirees.
In a press release issued on April 09, 2025, the Monetary Policy Committee (MPC) noted that while the inflation is currently below the target, economic growth is still recovering after a weaker performance in the first half of 2024-25. RBI also noted that “it will continuously monitor and assess the economic outlook in such challenging global economic conditions”.