The Reserve Bank of India (RBI) has once again changed the repo rate. This time a reduction of 0.25 points has been made and now the new repo rate is 5.25. RBI has made this cut due to strong economic growth and softening of inflation. Due to reduction in repo rate, interest rates on new loans will reduce and installments on old loans will reduce. With this, RBI has increased the economic growth estimate for the current financial year from 6.8 percent to 7.3 percent. Apart from this, the inflation rate estimate has been reduced from 2.6 percent to 2 percent.
The repo rate being cut for the fifth time this year means that a total cut of 1.25 percent has been made in 2025 itself. Earlier, the central bank had cut the repo rate by a total of 1 percent from February to June this year. Whereas in the monetary policy review in August and October, the repo rate was kept constant at 5.5 percent.
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Giving information about the decisions taken in the three-day meeting of the six-member Monetary Policy Committee (MPC), RBI Governor Sanjay Malhotra said, ‘The MPC has unanimously decided to reduce the repo rate by 0.25 percent to 5.25 percent.’ He said that along with this the monetary policy stance has been kept neutral. This means that the central bank will remain flexible regarding changes in these rates according to the economic situation.
What is the repo rate?
Repo rate is the rate of interest at which commercial banks take loan from the central bank i.e. RBI to meet their immediate needs. Due to reduction in repo rate, there is a change in the interest rates of home loan and car loan. RBI has increased the estimate of Gross Domestic Product (GDP) growth rate for the financial year 2025-26 from 6.8 percent to 7.3 percent.
At the same time, the estimate of retail inflation for the current financial year has been reduced to 2.0 percent whereas earlier it was estimated to be 2.6 percent.
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How is EMI and loan affected?
Due to reduction in repo rate, banks get cheaper loans and they pass this benefit to their customers. For example, if the repo rate when you took the loan was 5.50 percent and later it was reduced by 0.25 points, then your loan will become cheaper. Generally it is seen that banks reduce the number of EMIs according to the repo rate.
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