RBI cuts interest rates by 25 bps to 6.25%: Check how much you can save on home and auto loan EMIs

SUMMARY

The RBI reduced the repo rate by 25bps to 6.25% for the first time in nearly 5 years. This move is expected to lower home and auto loan EMIs, offering relief to borrowers as well as stimulate economic activity and boost consumption.

RBI's decision to cut the repo rate likely to stimulate economic activity by making borrowing cheaper. | Image: Shutterstock

The Reserve Bank of India’s (RBI) six-member Monetary Policy Committee (MPC) cut the repo rate by 25 basis points to 6.25% on Friday. This is the first time the central bank has announced a repo rate cut since May 2020.

The RBI increased its repo rates until February 2023 following the economic recovery after the COVID-19 pandemic. Thereafter, the repo rate remained unchanged for 11 consecutive meetings at 6.50%.

The RBI’s repo rate cuts come just weeks after the Budget 2025 announced zero tax on income up to ₹12 lakh. These two major events, within a short span of time, are likely to boost domestic economic activity and consumption.

How much will you save on home loan EMIs?

Homebuyers across India who are eligible for floating interest rate home loans may see their interest rates going down by up to 25 basis points, in line with the RBI’s announcement. Here is how much you can save each year on home loans of ₹20 lakh, ₹30 lakh and ₹50 lakh, assuming that the tenure is 20 years and the average median interest rate of 8.75% (before the repo rate cut).

Savings on auto loan EMIs

The repo rate cut is also likely to benefit those who have taken a car or two-wheeler loan, which also falls under the retail loan category. Auto loan borrowers may also see their interest rates going down by 25 basis points (0.25%), provided that the bank passes on the full benefit to them.

Here is how much auto loan borrowers can save on loans of ₹5 lakh, ₹7 lakh, and ₹10 lakh given that the tenure is five years and an average median interest rate of 9.4% per annum (before the repo rate cut).

RBI’s decision to slash the repo rate comes amid a challenging global economic scenario, a slowing Indian economy, and inflationary pressures. The RBI’s move could be a much-needed relief for the middle class as it paves the way for lower interest rates and EMIs. However, the banks may also reduce the interest rates on Fixed Deposits (FDs) as they may no longer need to offer higher FD rates to attract investors.