In a major move to support economic growth, the Reserve Bank of India (RBI) on Thursday cut the repo rate by 25 basis points, bringing it down from 5.50% to 5.25%.
The decision was taken by the Monetary Policy Committee (MPC) led by Sanjay Malhotra, and the vote was unanimous
Why the Rate Was Cut?
- The RBI said it felt comfortable easing interest rates because inflation has remained very low in recent months, giving the central bank enough space to boost economic activity.
- At the same time, India’s economy has shown strong momentum. With better-than-expected growth data, the RBI has increased its GDP forecast for FY26 to 7.3%, up from its earlier estimate of 6.8%.
Impact on Borrowers
A repo rate cut usually leads to lower interest rates on loans.
If banks pass on this reduction, borrowers may see:
- Lower EMIs on home loans
- Cheaper personal and car loans
- Easier credit for businesses
However, experts also warn that fixed deposit and savings interest rates may decline, affecting savers.
Inflation Outlook
Along with better growth expectations, RBI also lowered its inflation projection for next year to around 2%, suggesting price levels are likely to remain stable.
Additional Measures
To support liquidity, the RBI will:
Buy government bonds worth ₹1 lakh crore
Conduct a USD/INR swap to bring more dollars into the system
These steps aim to ensure banks have enough funds to lend smoothly.
The combination of low inflation, strong growth, and a rate cut signals RBI’s confidence in the current economic environment.
Economists believe the move could:
- Boost consumer spending
- Encourage business investments
- Support job creation
- Strengthen overall economic demand
With this policy, the RBI is trying to make borrowing easier and keep the growth momentum strong, while ensuring inflation stays under control. The coming months will show how quickly banks pass on the benefits to customers and how the economy respond
