RBI Cuts Repo Rate to 6.25%: Impact on Economy, Investments, and Real Estate

RBI Cuts Repo Rate to 6.25% under New Governor Sanjay Malhotra, Maintains Neutral Stance

The Reserve Bank of India (RBI), under the leadership of newly appointed Governor Sanjay Malhotra, has reduced the repo rate by 25 basis points to 6.25%, marking the first rate cut after eleven consecutive meetings of unchanged policy. The Monetary Policy Committee (MPC) has opted to maintain a neutral stance, ensuring a balanced approach to economic growth and inflation control.

In a move to enhance liquidity, the Cash Reserve Ratio (CRR) was also reduced to 4% in December. Meanwhile, the RBI forecasts a strong GDP growth of 7.2% for the financial year 2024-25, signalling confidence in India's economic momentum.

This strategic adjustment aims to support credit expansion, investment, and economic stability, reinforcing India's position as one of the world's fastest-growing economies.

Key Highlights:

Repo Rate Cut: The RBI made its first repo rate cut since 2019 by lowering it by 25 basis points to 6.25%.

Growth Outlook: India’s GDP growth for FY26 has been increased to 6.7%, showing strong economic progress.

Inflation Forecast: The RBI expects inflation to stay at 4.2% in FY26, keeping prices stable.

Government’s Contribution: This move comes after the government cut personal tax rates in the federal budget, aiming to boost spending and support economic growth.

 

The Reserve Bank of India (RBI) announced a much-awaited 25 basis point (bps) cut in the repo rate, bringing it down to 6.25%. In an effort to boost economic development, the central bank has lowered interest rates for the first time in almost five years.

Governor Sanjay Malhotra presided over the RBI's most recent Monetary Policy Committee (MPC) meeting, where the decision was reached. The central bank increased its forecast for economic growth in FY26 from 6.6% to 6.7% in tandem with the rate drop. Furthermore, for the same time frame, the RBI has forecasted inflation to be 4.2%.

The Significance of the Repo Rate Cut?

The RBI’s repo rate cut follows the government's recent decision to reduce personal tax rates in the Union Budget, a move aimed at boosting consumer spending. This rate cut is expected to further stimulate economic growth by making borrowing more affordable for both businesses and individuals.

A Reuters poll revealed that over 70% of analysts predicted this 25-basis point reduction. Lower interest rates are likely to encourage businesses to take loans for expansion, while individuals could benefit from more affordable home and auto loans. This increased borrowing and spending is anticipated to drive economic activity, supporting sustained growth.

Understanding the Repo Rate and Its Impact on You

The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends funds to commercial banks to address short-term liquidity requirements. When the RBI reduces the repo rate, it lowers borrowing costs for banks, which often translates into lower interest rates on loans for consumers. This makes home loans, car loans, and personal loans more affordable, stimulating spending and encouraging investment. On the other hand, a higher repo rate increases borrowing costs, leading to lower inflation but potentially slowing economic growth as consumers and businesses reduce borrowing.

With the recent repo rate cut, borrowers can expect lower EMIs and easier access to credit, which will likely boost economic activity. However, reduced rates may lead to lower returns on fixed deposits and savings accounts, impacting individuals who depend on interest income.

The RBI’s move reflects a strategic shift towards supporting economic expansion while keeping inflation under control. Amid global economic uncertainties, the central bank’s decision will be crucial in shaping India’s financial landscape and determining the country’s economic trajectory in the coming months.

Combining Loan Benefits with Tax Savings

The economic advantages are further enhanced when these savings are considered in conjunction with the income tax exemptions included in the Union Budget 2025. People who earn up to ₹12 lakh in taxable income are excused from paying taxes under the new tax system. The tax savings might total ₹1.14 lakh per year for an individual making ₹25 lakh in gross salary. Together with the ₹1.50 lakh interest savings on a home loan of ₹50 lakh, the annual savings would come to ₹2.64 lakh, or roughly ₹22,000 every month.

RBI’s Repo Rate Cut: A Game Changer for Real Estate Growth

The Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points, bringing it down to 6.25%, marking its first rate cut in five years. This move is expected to boost homebuyer confidence, stimulate housing demand, and encourage property investments, as home loan EMIs become more affordable.

Lower Borrowing Costs to Drive Housing Demand

Industry experts believe that reduced interest rates will significantly ease financial burdens on homebuyers and developers alike. With lower EMIs, homeownership will become more accessible, especially in the affordable and mid-segment housing categories.

A Boost for Real Estate & Economic Growth

The repo rate cut comes at a crucial time when economic momentum and liquidity need a push. Alongside recent measures in the Union Budget, this move will fuel infrastructure development, accelerate project completions, and support long-term real estate expansion.

Developers & Investors to Benefit

Developers will find it easier to access funds for new and ongoing projects, helping meet the rising housing demand. Additionally, investors may see improved returns, as lower interest rates often lead to increased property appreciation.

A Positive Shift for the Market

This policy shift signals a proactive approach by the RBI to sustain real estate growth. With rising urbanization and evolving buyer aspirations, the rate cut is set to play a crucial role in shaping India's housing market in the coming years.