The Reserve Bank of India (RBI) has decreased the repo rate by 25 basis points to 6.25% on February 7, as announced by new RBI governor Sanjay Malhotra. This is the first rate cut since the benchmark was left unchanged for 11 consecutive policy meetings. The repo rate cut is expected to reduce interest rates on home, car and personal loans, and provide much-needed relief to borrowers.
If lending rates decrease, then EMIs might also reduce, making credit more affordable. Adhil Shetty, the CEO of Bankbazaar.com, said: “The rate cut is likely to reduce the financial burden on the borrowers as banks and financial institutions are likely to pass on the benefits to the customers by reducing their interest rates.” For instance, if your home loan interest rate drops from 8.75% to 8.50%, then your EMI will be reduced to ₹43,391 from ₹44,186. It is, however, important to note that this will only be the case if banks actually reduce their interest rates following the RBI’s move. Homebuyers are going to benefit immediately as the lending rates may decrease for them, while the existing borrowers can try to switch their loans to better terms and conditions.
Kushal Rastogi, the CEO of Knight Fintech, pointed out that increase in liquidity may enhance business activity. “The purpose of this rate cut is to reduce borrowing costs, boost consumer spending and promote investment,” he explained. Not only does the repo rate cut relieve financial pressures but also encourages consumer spending and investment, thereby sustaining economic growth.
