Good news for borrowers as home loan EMIs set to come down: Here is how
It is good news for home loan borrowers. The Reserve Bank of India's monetary policy committee just decided to cut the repo rate by 25 basis points (0.25 per cent) from 6.25 per cent to 6.0 per cent. This is the benchmark rate at which RBI lends money to commercial banks and taking into account the 25 bps cut in February this year, the repo rate is now down 50 bps.
How will this help borrowers? If you have a ₹50 lakh loan taken for 20 years at a floating 9 per cent rate of interest, at the beginning of the year your monthly home loan EMI would have stood at around ₹45,000. Taking into account the 25bps cut in February and the latest 25bps reduction, the monthly EMI on the loan will now come to a little under ₹43,400.
That is a monthly saving of about ₹1,600 and ₹19,200 annually. Over a 20-year period, the savings would amount to a good ₹3.8 lakh. Of course, you could choose to keep the EMI unchanged and lower the tenure, a move that will help you pay off your loan faster.
This reduction in EMI is, of course, if your loan is linked to an external benchmark like the repo. If the loan is linked to the MCLR (marginal cost of funds-based lending rate), then the transmission typically takes some time depending on the particular bank's asset-liability condition.
Why did RBI slash the repo rate for the second time this year?
On the one hand, the CPI (Consumer Price Index) inflation has come down to comfortable levels. RBI has an inflation target of 4 per cent. CPI inflation moderated to a 7-month low of 3.6 per cent in February 2025 and RBI Governor Sanjay Malhotra said on Wednesday that there had been a "decisive improvement" in the inflation outlook.
Secondly, the pressure on the rupee versus the US dollar has also eased recently. Thirdly and more importantly, the reciprocal tariffs announced by US President Donald Trump have clouded the global growth outlook and raised the chances of a US and perhaps global recession. This will invariably have an impact on India's domestic growth, which had just about begun recovering from the slowdown in the first half of the 2024-25 financial year.
All in all, that meant the central bank had room to cut the repo rate cut. This decision to reduce the interest rate was unanimous and the MPC also decided to change the stance from "neutral" to "accommodative." This means that going forward, in the absence of any shocks, the MPC will consider only two options—either a status quo on rates or a rate cut.
"As per projections, there is now greater confidence of a durable alignment of headline inflation with the target of 4 per cent over a 12-month horizon. On the other hand, impeded by a challenging global environment, growth is still on a recovery path after an underwhelming performance in the first half of 2024-25. In such challenging global economic conditions, the benign inflation outlook and moderate growth demand that the MPC continues to support growth," said Malhotra.
He stressed that the recent trade tariff-related measures have exacerbated uncertainties clouding the economic outlook across regions, posing new headwinds for global growth and inflation. On the inflation front, while the sharper-than-expected decline in food inflation has given the MPC comfort and confidence, they would remain vigilant to the possible risks from global uncertainties and weather disturbances, added Malhotra.
The central bank has now forecast CPI inflation for the full year 2025-26 at 4 per cent, lower by 20 bps compared to its earlier projection of 4.2 per cent. CPI inflation in the April-June quarter is expected to trend at 3.6 per cent, rise a bit to 3.9 per cent in the July-September quarter, average 3.8 per cent in the October-December quarter and then rise to 4.4 per cent in the January-March quarter of 2026.
Meanwhile, RBI expects real GDP to grow 6.5 per cent in the current financial year, 20bps lower than its earlier expectation of 6.7 per cent. The downward revision reflects the impact of global trade and policy uncertainties, noted Malhotra.
Apart from cutting interest rates, the RBI has taken several measures in the past 2-3 months to boost liquidity in the banking system, in turn aiding growth. This has helped system liquidity, which was in a deficit in January 2025, turn to a surplus of ₹1.5 lakh crore as on April 7, Malhotra pointed.
"The Reserve Bank is committed to provide sufficient system liquidity. We will continue to monitor the evolving liquidity and financial market conditions and proactively take appropriate measures to ensure adequate liquidity," he added.
Malhotra also noted that the financial soundness parameters of the banking system remained "robust" and that the liquidity buffers in the banking system remained well above the regulatory threshold.
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