RBI Repo Rate: Decoding the 25bps Cut & Its Impact on Your Finances

On February 7, 2025, the RBI’s six-member MPC unanimously decided to lower the repo rate from 6.5% to 6.25%. This decision comes shortly after the Centre’s move to reduce personal income tax, a measure aimed at boosting consumption. RBI Governor Sanjay Malhotra explained that lowering the repo rate is intended to make loans more affordable, thereby encouraging both spending and investment.

The central bank’s choice to maintain a “neutral” stance means that while the rate cut is designed to support growth, the RBI remains cautious and ready to adjust policies as needed based on evolving economic conditions. This balanced approach is crucial given the global uncertainties and domestic challenges that continue to influence the economy.

Key Economic Projections

Governor Malhotra also shared some important forecasts during the meeting:

• GDP Growth: The RBI estimates that the GDP will grow at around 6.7% in the next fiscal year (FY26). The projected growth is expected to be:
• Q1: 6.7%
• Q2: 7.0%
• Q3: 6.5%
• Q4: 6.5%

• Inflation Forecast: The central bank has maintained its forecast for retail inflation:
• FY25: 4.8%
• FY26: 4.2%

A normal monsoon and favorable conditions in the food sector are key factors behind these figures.

Below is a summary table of the key forecasts:

Parameter	FY25	FY26
GDP Growth	6.4%	6.7%
Retail Inflation	4.8%	4.2%

This table provides a snapshot of the RBI’s economic outlook and helps us understand the rationale behind the repo rate cut.

The Impact of the RBI Repo Rate Cut

Let’s dive into what this rate cut means for borrowers, investors, and the broader financial market.

Impact on Loans

When the RBI lowers the repo rate, it reduces the cost at which banks borrow money. This typically translates into lower interest rates for consumers. Here’s how it affects various types of loans:

• Home Loans: Borrowers with floating rate home loans may see a reduction in their equated monthly installments (EMIs).
• Personal Loans: Lower interest rates make borrowing more affordable, encouraging individuals to take out loans for big-ticket purchases.
• NBFC Loans: Non-banking financial companies (NBFCs) also adjust their lending rates based on the new repo rate, benefiting consumers across the board.

For savers, a lower repo rate often means a reduction in the interest rates offered on fixed deposits. This can result in lower returns on savings instruments, which is a trade-off for the broader economic benefits of lower borrowing costs.

Additional Measures and Global Context

In addition to the repo rate cut, the RBI is taking steps to secure the financial system against cyber threats. Measures such as additional authentication for international digital payments and exclusive domain names for banks and financial institutions are being implemented to enhance cybersecurity.

On the global front, geopolitical tensions and trade uncertainties continue to affect market sentiment. Recent announcements of tariffs by the US on countries like Canada, Mexico, and China have contributed to a more volatile global environment. This has, in turn, influenced currency movements and added to the cautious approach taken by the RBI.

RBI Repo Rate Cut History

To put the current move in perspective, let’s take a quick look at the historical repo rate adjustments by the RBI:

Date	RBI Repo Rate
December 5, 2019	5.15%
March 27, 2020	4.40%
December 4, 2020	4.00%
December 8, 2021	4.00%
February 10, 2022	4.00%
December 7, 2022	6.25%
February 8, 2023	6.50%
August 8, 2024	6.50%
February 7, 2025	6.25%

This table highlights the significant changes over the past few years, emphasizing that the current rate cut is a notable shift after a prolonged period of stability.