RBI Repo Rate Cut: What It Means For Your Auto Loan EMIs

In a move aimed at reviving demand and easing financial conditions, the Reserve Bank of India (RBI) on Thursday has reduced the the repo rate by 50 basis points to 5.5% from 6%. This sharp cut in the benchmark lending rate by the central bank is expected to bring down borrowing costs for individuals and businesses, especially in the automobile sector.

It is to be mentioned that the repo rate is the interest rate at which the central bank lends short-term funds to commercial banks. A rate cut typically prompts banks to lower their lending rates, making loans more affordable for consumers.

Also Read: RBI's Hat-trick Rate Cut: Repo Rate Down To 5.5% As Inflation Falls To 3.7%, GDP Growth Steady At 6.5% | Republic World

With this cut, the cost of servicing loans—particularly those linked to external benchmarks—is likely to fall, offering relief to borrowers through lighter monthly EMIs.

Responding to the rate cut by 50 basis points to 5.5% from 6% by RBI, Shailesh Chandra, President, SIAM and Managing Director of Tata Passenger Vehicles Ltd & Tata Passenger Electric Mobility Ltd. said, “Such reduction in repo rates would have a positive impact on the auto sector since it would lead to increased accessibility to finance at reduced costs, thereby creating a positive sentiment amongst the consumers in the market.”

Similarly, the Automotive Component Manufacturers Association of India (ACMA) stated that these measures, especially in the backdrop of persistent global headwinds, are a “timely” and “proactive step” toward stimulating domestic demand and supporting industrial growth.

“The reduction in interest rates is expected to translate into lower borrowing costs for both consumers and businesses, thereby providing a much-needed boost to the automotive sector, which has been navigating a complex macroeconomic environment. The infusion of liquidity through the Cash Reserve Ratio cut will further ease working capital pressures, particularly for MSMEs that form the backbone of the auto component industry,” stated Shradha Suri Marwah, President, ACMA.

It is pertinent to note that this is the RBI’s most aggressive rate cut in recent quarters and reflects growing concerns around slowing economic momentum. While inflation remains within the central bank’s comfort zone, signs of subdued demand and global headwinds have prompted a more accommodative policy stance.

As Dr. Anish Shah, Group CEO & MD, Mahindra Group puts it, "We welcome the Reserve Bank of India’s decision to reduce policy rates at a time when the Indian economy is poised for its next phase of growth. This move demonstrates the RBI’s confidence in the macroeconomic fundamentals and its proactive approach to supporting sustainable expansion. The rate cut will serve as a positive catalyst for consumption and investment, particularly in interest-sensitive sectors such as automobiles, housing, and MSMEs. It will also ease borrowing costs, improve liquidity, and further strengthen the momentum behind India’s infrastructure and manufacturing push.”

During the previous Monetary Policy Meet (MPC), RBI Governor Sanjay Malhotra on 9^th April announced that the central bank is reducing the repo rate by 25 basis points (bps) to 6%, thus giving a fillip to the automotive and housing sectors.