&imwidth=800&imheight=600&format=webp&quality=medium "RBI cuts repo rate by 25 bps to 5.25 per cent. Here's what it means for your loan interest rates")
The Reserve Bank of India on Friday (Dec 5) cut the policy repo rate by 25 basis points, bringing it down to 5.25 per cent. The announcement came right after the three-day Monetary Policy Committee meeting that ran from December 3 to 5. Announcing the repo rate cut, RBI Governor Sanjay Malhotra said the committee had gone through a full review of the economic outlook before arriving at the decision. "The MPC (Monetary Policy Committee) voted unanimously to reduce the policy repo rate by 25 basis points to 5.25% with immediate effect," he said. With the latest rate cut, the RBI MPC has lowered the repo rate by 125 bps this calendar year.
Unanimous decision
The RBI governor said that the Monetary Policy Committee voted unanimously to bring about the rate cut. "The MPC met on the 3rd, 4th, and 5th of December to deliberate and decide on the policy repo rate. After a detailed assessment of the evolving macroeconomic conditions and outlook, the MPC voted unanimously to reduce the policy repo rate by 25 basis points to 5.25 per cent, with immediate effect."
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The rate cut comes at a time when the broader economy is still showing strength. India posted GDP growth of 8.2 per cent in the second quarter of the financial year, while inflation slipped to 0.25 per cent in October — a record low, according to the Ministry of Statistics and Programme Implementation.
The move marks a shift from the previous policy review on October 1, when the central bank held the repo rate steady at 5.5 per cent. Then too, the MPC had voted unanimously, opting to keep the rate unchanged after reviewing domestic and global trends across three days of discussions.
What does the repo rate cut mean for you and your home loan?
A lower repo rate usually filters down to home loan borrowers. In most cases, banks keep the EMI unchanged and shorten the repayment tenure after a rate cut. For example, if you took a ₹50 lakh home loan for 20 years at 8.5 per cent interest. With a combined 125 basis point cut, the tenure would drop by over 190 months. Over the life of the loan, that works out to about ₹18.32 lakh saved in interest.
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If, instead, the borrower opts for a lower EMI rather than a shorter tenure, you would end up saving roughly ₹9.29 lakh.
