RBI REPO RATE: The Central Bank of India, RBI, has reduced the repo rate by 25 bps
It is good news for the homebuyers! On December 5, the Reserve Bank of India (RBI) lowered the repo rate by 25 basis points to 5.25% with the expectation of lighter EMIs and lower interest rates. It is like a tiny but nice gift for your wallet. This action could make the once horrifying monthly home loan payments a bit less terrifying, thus giving the borrowers the much-needed relaxation.
So, no matter if you are having your morning chai or figuring out your next EMI, the time has come for you to smile, a little more money may just remain in your pocket!
Market Expectations And Policy Context
- The decision aligns with a Moneycontrol poll of 18 economists, treasury heads of banks, and fund managers, with the majority predicting a 25 bps cut.
- The RBI MPC has now lowered the repo rate by 125 bps in 2025.
- The rate-cutting cycle began in February, marking the first reduction after May 2020.
- Between February and June, the repo rate was reduced from 6.5% to 5.5%.
- The MPC maintained status quo in August and October.
Home Loan Rates And Repo-Linked Benefits
| Aspect | Details |
|---|---|
| Home Loan Rates | HDFC Bank, ICICI Bank, SBI, Bank of Baroda, Canara Bank: 7.3–7.9% |
| External Benchmark Linking | Since October 1, 2019, all new floating-rate retail loans linked to an external benchmark (usually repo rate) |
| Transmission of Policy | Linking loans to repo rate ensures faster and transparent impact on borrowers |
Impact On Current Borrowers: EMI Relief And Smart Savings
Congratulations to all the home loan borrowers! As RBI reduces the repo rate, your EMIs and interest rates enjoy the much-needed relief. Usually, banks do not alter EMIs automatically; they rather reduce your loan tenure, which can change your 20-year repayment marathon into a slightly shorter sprint.
Consider a home loan of Rs 50 lakh for 20 years at an 8.5% interest rate, which was disbursed in January; the loan period could be reduced to 198 months, and the interest you would have paid would still be a tremendous Rs 18.32 lakh less. If you want to maintain your EMIs at the current level, you will still save Rs 9.29 lakh. It’s time to celebrate your good luck, or at least enjoy your chai a bit less guiltily!
New vs Existing Home Loan Borrowers: Who Benefits from RBI’s Repo Rate Cut?
| Aspect | New Borrowers | Existing Borrowers |
|---|---|---|
| Rate Reduction | Most public sector banks reduced rates by 100 bps following RBI policy | Existing borrowers with high-interest loans can switch to repo-linked products to reduce costs |
| Private Bank Impact | Some private banks have not transmitted full benefit; adjusted spread over repo rate | Can benefit from switching to repo-linked loans for long-term savings |
| Key Advantage | Lower starting rates for fresh loans | Potential reduction in overall interest payments over loan tenure |
| Recommendation | Evaluate banks for best repo-linked rates | Consider switching to repo-linked loans to maximize savings |
Aishwarya is a journalism graduate with over three years of experience thriving in the buzzing corporate media world. She’s got a knack for decoding business news, tracking the twists and turns of the stock market, covering the masala of the entertainment world, and sometimes her stories come with just the right sprinkle of political commentary. She has worked with several organizations, interned at ZEE and gained professional skills at TV9 and News24, And now is learning and writing at NewsX, she’s no stranger to the newsroom hustle. Her storytelling style is fast-paced, creative, and perfectly tailored to connect with both the platform and its audience. Moto: Approaching every story from the reader’s point of view, backing up her insights with solid facts.
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