RBI Slashes Repo Rate By 25 bps, Loans to Get Cheaper?

The Reserve Bank of India has slashed the repo rate by 25 bps (basis points). That is, a reduction in the repo rate to 5.25 percent. This is a positive sign. The repo rate has a direct relationship with home loans and EMI. India’s current macroeconomic situation is a rare goldilocks period, marked by strong economic expansion and extremely low inflation, according to RBI Governor Sanjay Malhotra. On Friday, the RBI Governor announced the cut down in the repo rate.

Malhotra emphasized the remarkable disinflation, pointing out that average headline inflation in Q2 decreased to 1.7 percent, which was the first time it fell below the RBI’s flexible inflation targeting framework’s lower tolerance range.

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Inflation:

Inflation is expected to be 0.6% in Q3 and 2.9% in Q4, according to quarterly predictions, before increasing to 3.9% in Q1 2026–27 and 4.0% in Q2, which is still within the central bank’s 2–6% goal range.

CPI:

The RBI has lowered its CPI inflation projection for 2025-26 to 2.0% from earlier forecasts.

FDI:

With more than 11 months of import coverage, foreign exchange reserves total USD 686.2 billion.

Supported by the GST rate rationalization exercise of September 2025 and driven by strong consumption, India’s real GDP increased by 8.2% in the second quarter of 2025-26. Considering all variables, the RBI increased its GDP growth estimate for the entire year by half a percentage point to 7.3%. The MPC chose a 25 bps rate drop by a unanimous vote, keeping a neutral attitude, in light of the positive balance between growth and inflation.

“The growth and inflation balance, particularly the favorable inflation outlook, continues to provide the policy space to support the growth momentum,” Malhotra stated.

RBI Repo Rate and Home Loans: 

Lower borrowing rates boost confidence, which may lead to increased home purchases in Tier 2 and metro towns. In the coming weeks, rates for other loans, such as auto loans, school loans and personal loans, may also fall.