RBI Reduces Repo Rate Again to 6%: Implications Explained

The Reserve Bank of India (RBI) has announced a significant policy adjustment by cutting the repo rate by 25 basis points, reducing it from 6.25% to 6%. This decision, unveiled by RBI Governor Sanjay Malhotra, is expected to lower borrowing costs for both individuals and businesses. The announcement was made during the first Monetary Policy Committee (MPC) meeting of the fiscal year 2026, which took place from April 7 to 9. This is the second consecutive rate cut, following a similar reduction in February.

Understanding the Repo Rate

The repo rate is the interest rate at which the RBI lends money to commercial banks for short-term needs, typically against government securities. As a crucial tool in the RBI’s monetary policy arsenal, it plays a key role in managing inflation and liquidity in the economy.

Reasons Behind the Repo Rate Cut

The decision to reduce the repo rate is driven by a desire to inject more liquidity into the financial system and stimulate economic activity, particularly when inflation is under control. For the fiscal year 2026, the RBI has projected Consumer Price Index (CPI) inflation at 4%, which comfortably sits within its target range of 2-6%.

Additionally, global uncertainties, particularly those arising from trade tensions triggered by US President Donald Trump’s reciprocal tariffs, have influenced the RBI’s decision. These tensions pose risks to global growth and could potentially impact India’s export sector.

Implications for Consumers and Investors

Loan EMIs May Get Cheaper

With the repo rate reduction, banks and financial institutions can borrow funds from the RBI at a lower cost. As a result, interest rates on home loans, auto loans, and new personal loans could decrease. The extent and speed at which individual banks pass on these benefits to consumers will determine the actual reduction in EMIs.

Impact on Fixed Deposits

While borrowers may benefit, fixed deposit (FD) investors could face drawbacks. As lending rates decline, banks may also reduce interest rates on deposits to maintain their margins. This means new FD investors might earn lower returns compared to those who locked in earlier at higher rates. If you are considering investing in FDs, it might be prudent to do so before banks potentially revise rates downward.

Effects on Personal Loan Borrowers

If you already have a personal loan, especially one with a fixed interest rate, your EMI is likely to remain unchanged. However, if you are planning to take out a new personal loan, the rate cut could lead to lower interest rates and more affordable repayments.

Economic Outlook and Growth Projections

Governor Sanjay Malhotra expressed optimism about the Indian economy, projecting a GDP growth rate of 6.5% for the fiscal year 2025-26. The quarterly breakdown is as follows:

• Q1: 6.5%
• Q2: 6.7%
• Q3: 6.6%
• Q4: 6.3%

He further highlighted that the agriculture sector appears promising, supported by healthy reservoir levels and robust crop production. Additionally, the manufacturing and services sectors are showing signs of revival, with urban consumption gradually increasing. Investment activity is on the rise, bolstered by strong corporate and bank balance sheets and continued government focus on infrastructure development.