As RBI is set to cut repo rate for the third time in a row, will your home loan EMI fall as well?

The Reserve Bank of India’s (RBI) monetary policy committee (MPC) is expected to cut repo rate on Friday after the conclusion of a 3-day policy meeting. This is likely to further reduce your home loan EMI once the banks pass on the benefit of rate cut to their consumers.

Notably, RBI cut repo rate by 25 basis points to 6.25 percent on February 7 after a gap of nearly five years. The maiden rate cut of 2025 was followed by another rate cut on April 9 – also of 25 basis points.

Now, if the MPC proceeds with a rate cut the third time, the repo rate will become lower than 6 percent. So, it appears that the rate cut cycle, which kicked off early this year is expected to continue for some more time. There is no denying the fact that this will lead to lower interest rates for borrowers on their home loans, but will it mean lower interest rates on personal loans as well?

Why does repo rate cut lead to lower lending rates?

Repo rate is a rate of interest which banks are meant to pay to the RBI when they borrow against government securities. So, when banks manage to get loans at a cheaper interest, they can afford to lend further at lower rates as well.

Did banks cut lending rates in the wake of earlier rate cuts?

There is no rule of thumb which says that the banks need to cut repo rate in the same proportion in which RBI cuts the repo rate.

However, a number of banks cut their lending rates after the previous rate cuts. For instance, State Bank of India (SBI), Bank of Maharashtra, Indian Bank and Punjab National Bank cut their lending rates in April. 

UCO Bank and Bank of India also reduced their lending rates in the wake of rate cut in April.

Why does the MPC intend to cut rates again?

At this stage, there are only predictions and expectations which are swirling around. SBI Research report has predicted a higher rate cut of 50 basis points. The report has attributed this to receding domestic liquidity and financial stability concerns in the Indian economy.

“Domestic liquidity and financial stability concerns have receded. Inflation is expected to stay within the tolerance band,” said the analysts at SBI Research in its report.

Will personal loan rates be affected as well?

Only those loans stand to get affected, which follow a variable interest rate. These include home loans and car loans. Since personal loans are disbursed at a fixed rate of interest, they will not see any fall in their interest rates. However, there could be some change in the interest rates of future personal loans.    

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