KKN  Gurugram Desk | The Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points, marking an end to the longest pause in the history of India’s monetary policy framework. The decision, announced on Friday, is expected to bring relief to millions of home loan and small loan borrowers as borrowing costs are set to decrease.

This repo rate cut, the first in nearly five years, follows the government’s mega tax relief announced in the Union Budget 2025-26. It is seen as a move to boost domestic consumption and economic growth, especially as inflation shows signs of easing.

Why RBI Decided to Cut Repo Rate After Five Years?

The repo rate cut was announced by RBI Governor Sanjay Malhotra, who took charge as the 26th governor in December. He emphasized that the decision was influenced by easing inflation and rising concerns over global economic slowdowns.

In his first monetary policy statement, Malhotra said:
“Considering the existing growth-inflation dynamics, the Monetary Policy Committee (MPC) felt that a less restrictive monetary policy is more appropriate at this time. The MPC will review economic conditions before taking further decisions in upcoming meetings.”

The repo rate cut is expected to:
✅ Lower home loan and personal loan interest rates, benefiting millions of borrowers.
✅ Improve liquidity in the banking system, encouraging businesses to invest and expand.
✅ Drive consumer spending, boosting demand for goods and services.
✅ Support economic growth amid global uncertainties.

Impact on Home Loan and Personal Loan Borrowers

The repo rate cut will directly benefit borrowers with floating interest rates on home loans, personal loans, and small business loans. Since most banks adjust their lending rates based on RBI’s repo rate, borrowers can expect EMIs on existing loans to decrease in the coming months.

• Home Loan Borrowers: Lower EMIs will make housing more affordable, attracting more buyers to the real estate market.
• Personal Loan Borrowers: Interest rates on personal loans and consumer credit are expected to decline, making borrowing cheaper.
• Business Loans: Small and medium enterprises (SMEs) and startups will find cheaper credit, supporting expansion and job creation.

Experts believe that banks and NBFCs will soon adjust their lending rates to reflect the RBI’s decision, passing on the benefits to customers.

Economic Growth and Inflation: A Delicate Balance

The RBI’s monetary policy aims to strike a balance between inflation control and economic growth. The decision to cut the repo rate suggests that inflation is under control, allowing room for a growth-friendly policy shift.

• Inflation Trends: With consumer price index (CPI) inflation declining, the RBI has chosen to ease borrowing costs.
• Global Slowdown Concerns: A slowing global economy has prompted central banks worldwide to adjust monetary policies.
• India’s Growth Prospects: The repo rate cut is expected to support domestic demand and investment, keeping India’s economy resilient.

This move aligns with global trends, as several central banks worldwide have also signaled rate cuts to counter economic slowdowns.

How Will This Affect the Stock Market?

The stock market responded positively to the repo rate cut, as lower interest rates usually benefit businesses by reducing borrowing costs.

• Banking Stocks: Stocks of major public and private sector banks saw marginal gains, as lower rates could boost credit demand.
• Real Estate Stocks: Shares of real estate developers surged, as home loans are expected to get cheaper, increasing property demand.
• Consumer Goods & Auto Sector: Companies in automobiles and FMCG sectors are expected to gain from increased consumer spending.

Market analysts predict that foreign investors may also react positively to India’s growth-friendly stance, bringing more investments into the economy.

Government’s Tax Relief and RBI’s Repo Rate Cut: A Strategic Move?

The repo rate cut follows the government’s major tax relief in the Union Budget 2025-26, signaling a coordinated effort to boost economic growth.

• Lower Income Tax Slabs: The government announced tax cuts for middle-class taxpayers, increasing disposable income.
• Corporate Tax Relief: Businesses received tax benefits, supporting investment and expansion.
• Boost to Consumption: With lower taxes and cheaper loans, the government aims to increase spending power among citizens.

Economists believe that these measures will provide a dual push to economic recovery, ensuring stable growth in the coming quarters.

Will RBI Cut Rates Further in 2025?

The big question now is whether RBI will continue cutting rates or if this was a one-time move. Experts suggest that further rate cuts will depend on:

• Inflation Data: If inflation remains under control, RBI may consider additional cuts to further support growth.
• Global Economic Trends: The global slowdown and decisions by US Federal Reserve and European Central Bank will impact RBI’s future moves.
• Fiscal Policies: The government’s spending and revenue collection will also influence monetary policy decisions.

For now, borrowers and investors can expect a more favorable financial environment, with lower loan rates and improved credit availability.

The RBI repo rate cut of 25 basis points marks a major shift in monetary policy, ending a five-year pause on rate changes. This move is expected to:

✅ Lower interest rates, making home loans and business loans more affordable.
✅ Boost economic growth, increasing demand in key sectors.
✅ Encourage consumer spending, supporting the post-pandemic recovery.
✅ Attract foreign investment, strengthening India’s position in global markets.

With the government’s tax relief and RBI’s growth-focused policy, India is set for a strong economic push in 2025. The coming months will reveal how this strategy impacts inflation, job creation, and financial markets.

Stay updated with the latest financial and economic news. Follow us for real-time updates on RBI policies and market trends.