Home, vehicle loans to become cheaper as RBI cuts repo rate by 50 basis points

The RBI on Friday cut repo rate by a higher-than-expected 50 basis points to prop up growth, which has slowed to a four-year low of 6.5 per cent in FY25.

Following the rate cut, the key policy rate eased to a three-year low of 5.5 per cent, providing relief to home, auto and corporate loans borrowers.

This is the lowest repo rate in three years.

The repo rate—the rate at which banks borrow funds from the RBI—had last stood at 5.40 per cent on August 5, 2022.

After a detailed assessment of the evolving macroeconomic and financial development, as well as the economic outlook, the Monetary Policy Committee (MPC) decided to reduce the repo rate by 50 basis points, RBI Governor Sanjay Malhotra said.

Since February 2025, the RBI has reduced the policy rate by 100 basis points. In its previous policy review in April, it had also trimmed the repo rate by 25 basis points to 6 per cent.

After reducing repo by 100 bps in quick succession, monetary policy is left with limited space to support growth, he added.

This is the first time since Covid-19 that the RBI has passed on three consecutive rate cuts, beginning February 2020.

Malhotra, however, retained the GDP forecast for the current fiscal at 6.5 per cent. The inflation projection was lowered to 3.7 per cent from the earlier estimate of 4 per cent, supported by expectations of a good monsoon.

The MPC felt that the front-loading of the rate cuts would help growth, he added.

The Rate-setting panel changed the stance to neutral from ‘accommodative’.