RBI Cuts Repo Rate to 6%: Relief for Home Loan Borrowers

In its inaugural monetary policy announcement of the new fiscal year, the Reserve Bank of India (RBI) has lowered the repo rate by 25 bps, from 6.25% to 6%. This action is taken amidst a backdrop of receding inflationary pressures and lingering global economic challenges.

Key Highlights from the MPC Meet

RBI Governor Sanjay Malhotra stated:

"The MPC noted that inflation is currently below the target, helped by a steep decline in food price inflation. Besides, inflation is decisively on the mend, while growth is still on the recovery pathway after having underperformed during the first half of 2024-25."

Decisions Taken:

Repo rate decreased: 6.25% to 6%.

The monetary policy stance was revised: from "neutral" to "accommodative," foreshadowing more cuts to come.

Benefits for Home Loan Borrowers

The cut directly benefits borrowers on floating-rate loans linked to external benchmarks, specifically the repo rate, for all loans sanctioned after October 1, 2019. 

For Existing Borrowers:

A 25 bps cut means lower interest outgo, which may mean a shorter loan tenure.

Example:

Loan amount: Rs 50 lakh for 20 years taken in March

Old EMI: Rs 43,391 at 8.5%

New Interest Outgo: Reduced by Rs 5.24 lakh, from Rs 54.14 lakh to Rs 48.90 lakh.

Loan Tenure: Reduced by 12 months on the assumption that EMI remains constant.

For loans issued in January, borrowers could avail of a total 50 bps cut after the reset of rates:

New Tenure: Reduced to 218 months.

Interest Saved: Approximately Rs 9.5 lakh.

For New Borrowers: 

Repo rate-linked lending enhances eligibility and lower EMIs.

Vipul Patel, founder of MortgageWorld, estimates:

Borrowers could qualify for Rs 25 lakh more in home loan amounts.

Falling Home Loan Rates

With this RBI move, home loan rates are likely to dip below 8%, particularly for borrowers with sound credit standing.

Home Loan Rate Trends Currently: 

As on April 4:

Public sector banks: Most have cut rates by 25 bps in line with the February RBI approach.

Private banks: Passed only 5 to 10 bps on to borrowers.

Lowest rates as of now: between 8.10% to 8.35%

Reserved for prime borrowers (credit score > 750) and refinance cases

Advice for Borrowers:

Refinancing should be considered by those paying 50 bps or more over current rates.

Refinancing to avail of lower rates is the recommendation for home owners who are paying 

substantially higher rates," says Adhil Shetty, CEO of BankBazaar.com.

Economic Outlook

The recent RBI step seeks to bridge economic recovery while keeping inflation at the target range. The accommodative stance opens for further cuts if inflation stays within target and growth momentum remains weak.