RBI Repo Rate Cut By 25bps: How Will RBI Rate Cut Impact Your EMIs?

The Reserve Bank of India ( RBI ) Governor Sanjay Malhotra on Wednesday announced that the central bank is reducing the repo rate by 25 basis points (bps) and this will affect home loans and their EMIs, as they may get cheaper.

After a three-day meeting of the central bank's Monetary Policy Committee (MPC), the RBI announced the conclusion that the repo rate currently stands at 6% after the latest rate cut.

While referring to the global tariff situation Sanjay Malhotra, the Governor of the RBI said that uncertainty dampens growth by affecting investment. He added, "the dent on global growth due to trade frictions will also impede domestic growth." He further said that higher tariffs will have a negative impact on net exports.

What Do Experts Say About The Rate Cut?

According to Mayur Modi, Co-Founder of Moneyboxx Finance, a BSE-listed NBFC, "The RBI’s 25 bps cut in rates and a shift in stance to accommodative are welcome moves. For NBFCs, the reduced cost of funds enables more affordable credit offerings to micro and small enterprises."

How Will EMIs Be Affected?

Lower EMIs: With a reduced repo rate banks may reduce their interest rate on home loans as well as other floating-rate loans which might lead to reduced EMIs.

Reduced Interest Rate: While the immediate impact of the rate cut might be muted, the interest rate for home loans might go down, empowering prospective homebuyers and making borrowing cheaper.

The MPC has taken an 'accomodative' policy stance, providing room to support growth and easing the inflation-marked trajectory for people taking loans.

Additionally, a reduced repo rate can stimulate the demand for real-estate, benefitting both developers as well as homebuyers.

Among the EMIs that can get affected there are the EMIs of floating rate loans, while fixed rate loans and their EMIs will not be impacted by the rate cut.

Loan interest rates also consist of two components— the Marginal Cost of Funds based Lending Rate (MCLR) and the spread. While the MCLR is likely to be reduced post the repo rate cut, the spread varies from bank to bank and is dependent on how much of the interest rate cut is passed on to customers.

Depending on their policies, banks may or may not give the full benefit of the rate cut to its borrowers. While some banks may give the full benefit others might only choose to reduce the interest rates partially.

How Much Will You Save?

For instance, a borrower has borrowed a Rs 50 lakh home loan from a bank at an interest rate of 8.70% over 30 years and the current EMI is Rs 39,157.

Since the interest rate has dropped by 25 bps to 8.20%, the revised EMI will be Rs 38,269, by way of which the borrower can now save Rs 888 every month.

While these are rough estimates, the final savings of the investments shall depend on the particular banks.

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