Loans Expected to Get Cheaper After RBI Cuts Repo Rate by 25 Basis Points

Home loans and other borrowings are expected to get cheaper as the Reserve Bank of India (RBI) has reduced the interest rates by 25 bps. This in turn ensures ample liquidity in the banking system amid global uncertainties triggered by tariff war.

The monetary policy committee (MPC) decided to slash the interest rate to 6% from 6.25%. Previously, the central bank cut interest rates by 25 bps in February.

While announcing the interest rates, RBI governor Sanjay Malhotra revised the growth and inflation forecast for 2025-26 to 6.5% and 4%, respectively. At a press conference Malhotra said the goal was to ensure surplus liquidity to the extent of 1% of bank deposits, which totals to nearly ₹2.3 lakh crore against current liquidity surplus of ₹1.5 lakh crore.

Malhotra said that he was more concerned about the impact of tariffs on growth rather than inflation, given the constraining effect of US President Donald Trump's levies on the global economy.

“First and foremost, uncertainty in itself dampens growth by affecting investment and spending decisions of businesses and households. Second, the dent on global growth due to trade frictions will impede domestic growth. Third, higher tariffs shall have a negative impact on net exports,” Malhotra said on Wednesday.

“There are, however, several known unknowns - the impact of relative tariffs, the elasticities of our export and import demand; and the policy measures adopted by govt including the proposed foreign trade agreement with the US, to name a few. These make the quantification of the adverse impact difficult,” he said.

He also noted that the primary impact on India is less because of a lower share of exports to GDP.

“Most of the forecasts now for the global GDP growth have come down by at least 20-30 basis points. Not only for this year, even for next year. We have reduced the growth rate by 20 basis points for this year primarily because of these uncertainties. Inflation will also decline because of the demand that is going to shrink as a result of the tariff friction, and food prices have also gone down. So all in all, more than inflation, we are concerned about its impact on growth," said Malhotra. He lowered the growth and inflation forecast for 2025-26 by 20bps to 6.5% and 4%, respectively. With inflation coming within the target, Malhotra hinted at further rate cuts. “Going forward, the trend (for real rates) is going to be downwards,” he said.

According to Malhotra, the RBI's rate cut actions will take time to make its way through the economy. “ When we raised the repo by 250 basis points, it took 6-9 months for the interest rates to decrease in response to the policy repo rate decrease.”