RBI cuts repo rate to 5.5%: What it means for your loans, EMIs and savings

With limited space left after cumulative rate cuts of 100 bps since February 2025, the RBI has also shifted its policy stance from "accommodative" to "neutral

In a move aimed at boosting growth and easing borrowing costs, the Reserve Bank of India (RBI) on Friday announced a 50 basis points cut in the repo rate, bringing it down to 5.5%. This is the third rate cut in 2025, and the largest single cut in over two years. The decision was taken after a three-day meeting of the Monetary Policy Committee (MPC) chaired by RBI Governor Sanjay Malhotra.

 

Key Rates Announced

Repo Rate: Reduced to 5.50% (from 6.00%)

 

Standing Deposit Facility (SDF): Adjusted to 5.25%

 

Marginal Standing Facility (MSF) & Bank Rate: Down to 5.75%

 

 

Why did RBI cut rates?

According to the RBI, inflation has cooled significantly, with CPI inflation dropping to 3.2% in April 2025 — the lowest in nearly six years. This trend was largely driven by falling food prices, moderate fuel costs, and stable core inflation.

 

At the same time, while India’s GDP growth remains steady (projected at 6.5% for 2025–26), the RBI believes there is room to stimulate consumer demand and private investment, especially with global uncertainties and trade tensions still posing risks.

 

What it means for you?

 

Lower EMIs Ahead

Home loans, car loans, and personal loans linked to the repo rate or external benchmarks could get cheaper soon.

 

Banks and NBFCs are expected to pass on the rate cut to customers over the coming weeks.

 

Cheaper credit for businesses

Small businesses and startups may benefit from lower working capital costs, potentially boosting hiring and investment.

 

 Lower Returns on Fixed Deposits

On the flip side, fixed deposit (FD) rates are likely to drop further, impacting savers, especially senior citizens.

 

Consider diversifying into government-backed schemes, debt mutual funds, or targeted saving instruments.

 

Should you lock your loan now?

If you’re considering taking a loan, floating rate options may work better in this environment.

 

For existing borrowers, check if your loan is repo-linked to benefit quickly from the rate drop. 

"Borrowers with repo-linked home loans will be the first to benefit from today’s cut. The most competitive rates in the market are already at 7.85%, largely for balance transfers or top-tier credit scores. As liquidity improves and policy transmission strengthens, more borrowers could soon access rates under 8%, a level last seen in early 2022.

 

Borrowers with older loans tied to the MCLR or base rate should evaluate switching. If your interest rate is 50–75 basis points higher than current offers, refinancing could mean substantial savings over the loan’s life, especially in the early years of repayment," said Adhil Shetty, CEO of Bankbazaar.com.

    What should FD investors do now?  

Most banks will lower FD interest rates soon, especially for short- to medium-term tenures (1–3 years).If you were planning to invest in FDs, act quickly to lock in current higher rates for longer durations (3–5 years)

 

"“The rate cut may not cause an immediate drop in fixed deposit (FD) returns, but it does mark the start of a downward cycle. Banks are likely to gradually reduce rates—first on shorter tenures. With current FD rates still hovering around 7.25–7.5%, this may be a good time for conservative savers, particularly senior citizens, to lock in longer-term deposits while rates remain attractive," added Shetty.

 

" Fixed deposit rates to come down sharply as banks transmit this rate cut. Investors should look at 2-3 year corporate bonds for their portfolio as they continue to offer good spreads over government and FD rates and interest rates will come down more gradually for corporate bonds," said Vishal Goenka, Co-Founder of IndiaBonds.com. 

   

 What's Next?

The RBI has now shifted its policy stance from "accommodative" to "neutral", meaning further rate cuts will depend on how inflation and growth trends evolve. The next MPC meeting is scheduled for August 4–6, 2025. 

 A double boost for affordable housing?

 

This is the third consecutive time this year that the apex bank has cut the repo rates. "This effectively lowers the cost of borrowing, making home loan EMIs easier on the pocket and thereby directly improving affordability for buyers. This can potentially boost demand in the Indian real estate sector, especially in affordable and mid-income segments. Affordable housing faced the sharpest pandemic fallout, with sales and new launches shrinking in the top 7 cities," said Anuj Puri, Chairman – ANAROCK Group.

 

ANAROCK data shows that affordable housing sales share plummeted from 38% in 2019 to 18% in 2024, while its supply share dropped from 40% to 16% in the same period. However, a 19% dip in unsold stock hints at sustained demand led by end-users. "It will also lower developers’ borrowing costs. It is sincerely hoped that banks pass on the benefits of this move seamlessly to borrowers. 

 

The reduction in the Cash Reserve Ratio (CRR) will help boost liquidity in the banking system, which means that banks have more funds to lend. Developers will be able to access more capital for their projects, and this can positively impact project completion timelines. It also gives banks the option to reduce home loan interest rates, which will have again positively impact sentiment in the affordable and mid-income segments," said Puri.  RBI cut will enhance home loan affordability 

" This decision comes at a pivotal time, as India, now the world’s fourth-largest economy, is witnessing strong real estate momentum across metros as well as Tier 2 and Tier 3 cities. Lower lending rates will directly enhance home loan affordability, particularly in interest-sensitive categories like mid-income and affordable housing. Reduced EMIs are expected to significantly improve buyer sentiment and encourage first-time homebuyers to enter the market.

 

 Lower interest rates will increase homebuyer affordability and improve the financial viability of affordable housing projects," said Shekhar G Patel, President,Confederation of Real Estate Developers' Associations of India (CREDAI). 

"For the real estate sector, this move is a strong tailwind: it lowers borrowing costs for buyers & developers, boosts homebuyer confidence, and enhances affordability, especially in the affordable and mid-income housing segments. This could lead to improved buyer sentiment, an increase in residential property enquiries and conversions, and a pickup in sales volumes across key urban markets. Over the medium term, the reduction in the cost of capital is also expected to enhance investor confidence, potentially boosting activity in both residential and commercial real estate segments," said Vimal Nadar, National Director & Head, Research, Colliers India. 

 “Interest rates have dropped by 100 basis points just in the first half of 2025—and that’s good news for anyone thinking about buying a home. Lower borrowing costs could mean home loans will become more affordable. We are already observing strong trends in the premium & luxury housing space, this move will provide required fillip to the mid segment housing as well. This will help improve overall buyer sentiments and could finally get those on the fence to take the plunge, both in the top cities and fast-growing housing hubs," said  Prasun Kumar, Chief Marketing Officer, Magicbricks.