The Reserve Bank of India (RBI) has recently reduced the repo rate by 25 basis points (bps). So the current repo rate is 5.25%, and earlier it was 5.50%.
With this reduction, interest rates on home, car, personal, and education loans are expected to come down in the coming months.
A lower repo rate means banks can borrow money from the RBI at a cheaper interest rate. This usually leads to reduced lending interest rates for borrowers, and this repo rate reduction offers several benefits to the public. They are the following:
Lower EMIs on Loans
Monthly EMIs for home, car, and personal loans may decrease if banks pass on the rate cut to customers. This can also help shorten the loan tenure.
Cheaper New Loans
People planning to take new loans—especially long-term loans like housing—may find borrowing more affordable. Lower interest rates can make big purchases such as homes, vehicles, or education loans easier to manage.
Increased Spending Power
With reduced EMIs, households are likely to have more availability of money. This can be used for savings, investments, or daily expenses.
Support for Businesses
Lower interest rates make borrowing easier for businesses as well. This can encourage investment, expansion, and hiring, indirectly benefiting the public through better job opportunities.
Boost to Economic Activity
Cheaper loans encourage borrowing and spending, which can help strengthen overall economic growth.
Challenges
There are also challenges in the reduction of repo rates, Interest rates on fixed deposits and savings accounts may decline, affecting those who depend on deposit income. There may also be a slight rise in inflation if spending increases sharply.
