The Reserve Bank of India (RBI) has cut the repo rate by 25 basis points, bringing it down from 6.25% to 6% – a move expected to ease borrowing costs for individuals and businesses. RBI Governor Sanjay Malhotra announced the decision during the first Monetary Policy Committee (MPC) meeting of FY26, held from April 7 to 9. This is the second consecutive cut after a similar rate reduction in February.
What Is The Repo Rate?
The repo rate is the interest rate at which the RBI lends money to commercial banks for short-term needs, usually against government securities. It’s a key tool used by the central bank to manage inflation and liquidity in the economy.
Why Did The RBI Cut The Repo Rate?
The RBI reduces the repo rate when it wants to inject more liquidity into the system and boost economic activity – especially when inflation is under control. For FY26, the RBI has projected Consumer Price Index (CPI) inflation at 4%, comfortably within its target range of 2-6%.
Global uncertainties over trade tensions triggered by US President Donald Trump’s reciprocal tariffs have also influenced the decision, as they pose risks to global growth and India’s exports.
How Will It Affect You?
- Loan EMIs May Get Cheaper – With the repo rate cut, banks and financial institutions can borrow funds from the RBI at a lower cost. This could lower interest rates on home loans, auto loans, and new personal loans. The actual reduction in EMIs, however, depends on how quickly and to what extent individual banks pass on the benefits to consumers.
- Impact On Fixed Deposits – While borrowers may cheer, fixed deposit (FD) investors could see a downside. As lending rates go down, banks may also cut interest rates on deposits to protect their margins. New FD investors might earn lower returns than those who locked in earlier at higher rates. If you are planning to invest in FDs, it might be wise to do so before banks revise rates downward.
- Personal Loan Borrowers – If you already have a personal loan, especially one with a fixed interest rate, your EMI will likely remain the same. But if you are planning to take a new personal loan, the rate cut could mean lower interest rates and more affordable repayments.
Governor Sanjay Malhotra said the Indian economy was on track, projecting GDP growth at 6.5% for FY 2025-26. This is the quarterly breakdown:
- Q1: 6.5%
- Q2: 6.7%
- Q3: 6.6%
- Q4: 6.3%
He also said that the agriculture sector looks promising due to healthy reservoir levels and robust crop production. The manufacturing and services sectors are showing signs of revival, and urban consumption is gradually picking up. Investment activity is rising, backed by strong corporate and bank balance sheets and continued government focus on infrastructure.
