The Reserve Bank of India (RBI) reduced its key repo rate on Friday for the first time since May 2020, aiming to provide stimulus to the sluggish economy, which is projected to grow at its slowest pace in four years during the current fiscal year.

After nearly five years, the RBI has cut the repo rate, bringing relief to home loan borrowers and expected to ease borrowing costs.

The repo rate, set by the RBI, influences borrowing costs for banks. A higher repo rate raises FD interest rates, attracting deposits, while a lower rate reduces FD returns by making borrowing cheaper.

After cutting the cash reserve ratio (CRR) by 50 bps from 4.5% of NDTL, to 4.0% of NDTL in the December 2024 policy, the RBI maintained status quo on CRR in the February 2025 policy. With the system liquidity deficit still at ₹1.96 Trillion, another CRR cut was expected to bridge the current liquidity gap, but that was not to be.

In addition to the repo rate cut, the Standing Deposit Facility (SDF) and Marginal Standing Facility (MSF) rates have also been reduced by 25 bps to 6% and 6.5%, respectively. The bank rate has also been adjusted to 6.5%.

EMIs on home and vehicle loans will come down, making it easier for individuals to repay their debts. A lower repo rate makes borrowing cheaper for individuals and businesses, which can lead to increased spending and investment.

Retail borrowers who have taken floating rate loans will see their EMIs shrink as banks pass on the benefit of lower repo rate to end consumers

While new borrowers can expect banks to revise their rates soon, existing borrowers will typically see the benefit at their next reset date, which could be in six or twelve months, depending on their loan agreement.

The Reserve Bank of India (RBI) reduced its key repo rate on Friday for the first time since May 2020, aiming to provide stimulus to the sluggish economy, which is projected to grow at its slowest pace in four years during the current fiscal year.