RBI cuts repo rate for second time; home, auto loans to get cheaper

Home, auto and other loans are likely to cost less as the Reserve Bank of India (RBI) cut interest rates on Wednesday for a second consecutive time and signalled more easing to come as it sought to bolster the economy that is facing further pressure from damaging US tariffs.

The Monetary Policy Committee (MPC), consisting of three central bank members and an equal number of external members, voted unanimously to cut the repurchase or repo rate by 25 basis points to 6 per cent. It had reduced rates by an equal measure in February—the first cut since May 2020.

The repo rate is the rate at which the RBI lends money to banks to meet their short-term funding needs. With a 25 bps cut in the repo rate, all external benchmark lending rates (EBLR) linked to it will come down. And if the banks fully pass on this to the borrowers, equated monthly instalments (EMIs) on home, auto and personal loans will

decline by 25 bps. The move lowers borrowing costs to the lowest level since November 2022, amid easing inflation and a fall in oil prices. The RBI changed its policy stance to “accommodative” from “neutral”, indicating the possibility of more rate cuts in future, Governor Sanjay Malhotra said while announcing the MPC decisions.

The rate cut came on a day when the full 26 per cent additional tariffs on Indian goods exported to the US were supposed to come into effect. The US tariffs exacerbate uncertainties, with some economists predicting a 20-40 basis point drag on Indian GDP growth in the current fiscal year that started on April 1.

“The recent tariff-related measures have exacerbated uncertainties clouding the economic outlook, posing new headwinds for global growth and inflation,” said Malhotra.

The RBI has lowered the GDP projection to 6.5% for FY25-26 from 6.7% earlier. The inflation projection was also lowered to 4% from 4.2%. The economy grew by 6.5% in the fiscal ended March 31.

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