In 2025, the RBI Repo Rate Cut became a major move by the Reserve Bank of India to support the slowing economy. During the first half of the year, RBI reduced the repo rate by a total of 0.75% (75 basis points), making it cheaper for banks to borrow money. As a result, banks lowered their loan interest rates, helping people with home loans, personal loans, and business loans. Borrowers with repo-linked loans such as RLLR or EBLR saw their EMIs reduce automatically. Small businesses also benefited from cheaper working capital loans, which helped them invest and grow. This encouraged borrowing and spending, boosting economic activity across sectors.

However, the RBI Repo Rate Cut also affected savers. When repo rates go down, banks usually lower the interest rates on Fixed Deposits (FDs). This hits senior citizens and retirees hard, as they rely on FD interest for monthly income. Many had to look for alternative options like SCSS, MIS, or low-risk mutual funds. While borrowers enjoyed reduced EMIs, savers faced lower returns. The repo rate cut was aimed at keeping inflation under control and supporting economic recovery, but it reminded everyone to strike a balance between borrowing and saving, based on their personal financial needs.

What is Repo Rate?

The repo rate, or Repurchase Agreement Rate, is the rate at which RBI lends money to commercial banks for short periods. Banks borrow money from RBI during cash shortages and provide government securities as collateral.

When RBI reduces the repo rate, banks get funds at a cheaper cost. This often encourages banks to reduce the interest rate on loans, which means cheaper EMIs for customers.

On the other hand, when the repo rate increases, borrowing becomes expensive, and loan EMIs may also go up.

Summary of Repo Rate Changes in 2025:

• Beginning of 2025 (before Feb 7): 6.50%

• February 7, 2025: 6.25% (25 bps cut)

• April 9, 2025: 6.00% (25 bps cut)

• June 6, 2025: 5.50% (50 bps cut)

As of July 4, 2025, the current repo rate stands at 5.50%.

RBI has paused any further rate cuts in July 2025. However, the economic situation in the coming months may change this decision.

Why Did RBI Cut the Repo Rate in 2025?

There are a few key reasons behind this decision:

• Economic slowdown: Sectors like real estate, automobile, and MSMEs showed weak performance.

• Low inflation: Consumer inflation was below RBI’s comfort level (5%), allowing space for rate cuts.

• Need to boost demand: Lower repo rate increases borrowing, spending, and investment in the economy.

This is a common step used by central banks across the world to revive the economy during slowdowns.

How Does a Repo Rate Cut Help the Economy?

Cutting the repo rate brings many benefits for the economy:

• Cheaper loans for individuals and businesses

• Lower EMIs for home loans, personal loans, car loans

• Encourages borrowing and consumer spending

• Boosts job creation through increased business activity

• Supports MSMEs and startups to get easy funding

• Improves liquidity in the financial system

It’s a simple chain — lower repo rate → lower bank loan rates → more borrowing → more spending → economic growth.

Example: Impact on Home Loan EMI

Let’s say you have a home loan of Rs 30 lakh for 20 years at 9% interest.

Your EMI = Rs 26,992 approx.

Now, if your loan is repo-linked, and bank reduces your loan rate to 8.5%, your EMI becomes = Rs 25,935 approx.

🔻 Saving per month = Rs 1,057

🔻 Saving per year = Rs 12,684

This saving can be used to invest, reduce loan tenure, or simply manage your monthly budget better.

How It Helps Businesses

For businesses, especially small and medium enterprises (SMEs), borrowing cost is a big factor. When repo rate is cut:

• Working capital loans become cheaper

• Cost of credit reduces

• Expansion plans become easier to fund

• New startups get cheaper loans

This promotes entrepreneurship and helps MSMEs contribute more to the GDP.

Does Repo Rate Cut Affect All Loans?

No. Only floating-rate loans (especially repo-linked loans) get affected immediately.

If your loan is based on RLLR (Repo Linked Lending Rate) or EBLR (External Benchmark Linked Rate), the change reflects within a few months.

If your loan is fixed rate, repo rate cut does not change your EMI.

What is RLLR?

RLLR = Repo Rate + Spread (bank margin)

Let’s say RBI repo rate is 5.25%, and your bank adds a margin of 2.5%. Your loan rate becomes:

5.25% + 2.5% = 7.75%

So, any change in repo rate directly changes your loan interest rate under RLLR.

About Fixed Deposits (FDs)?

Yes, repo rate cut affects FD rates too.

When banks get money cheaply from RBI, they don’t need high deposits from the public. So, they reduce FD interest rates.

FD rate trend in 2025:

• January: 7.50% (for 1-year FD)

• July: 6.25% – 6.50%

So, if you’re a senior citizen or someone relying on FD income, this may reduce your returns.

Was There a Repo Rate Cut in March 2025?

No. RBI policy decisions are announced every two months.

The February 2025 policy cut the rate to 5.75%, and that rate continued till April.

So, there was no separate cut in March.

Will RBI Cut the Repo Rate Again in 2025?

As of July 2025, RBI has paused repo rate cuts.

Most experts say further cuts may not happen unless:

• Inflation falls sharply

• India’s GDP growth weakens again

If the global or local economy shows weakness, RBI may consider a rate cut later in the year.

Is a Repo Rate Cut Good or Bad?

It depends on your situation.

👍 Good for:

• Loan borrowers (home, car, personal loans)

• Businesses looking to expand

• Stock market sentiment

👎 Bad for:

• FD investors (lower returns)

• Retired people depending on interest income

So, repo rate cut is good for growth, but not great for savings.

What Is the Normal Repo Rate?

There is no “fixed” normal rate, but historically repo rate in India ranges between:

4.00% to 6.50%

In July 2025, it is at 5.25%, which is considered moderate.

During COVID, it was as low as 4.00%. In high inflation times, it reached above 6.50%.

What Does “Rate Cut” Mean in Simple Words?

A rate cut means RBI has reduced the repo rate.

It is done to:

• Make loans cheaper

• Encourage spending

• Boost investment

• Support the economy

Think of it like fuel price cut. Just like petrol becomes affordable, loans become cheaper after a repo rate cut.

Key Benefits of Repo Rate Cut in 2025

• EMIs reduced by Rs 500–Rs 1500 per month

• Encouraged real estate and car sales

• Helped MSMEs with cheaper capital

• Increased liquidity in the banking system

• Improved stock market mood

• Made personal loans more affordable

• Pushed banks to offer better RLLR loans

Risks & Limitations

• FD investors lose interest income

• Low deposit rates may reduce bank collections

• Long-term inflation risk if rates stay low for too long

• Only repo-linked loans benefit; fixed-rate loans don’t

Full Form of Repo Rate

Repo Rate = Repurchase Agreement Rate

It means the rate at which RBI gives short-term loans to banks by taking back (repurchasing) securities after a set period.

What Should You Do?

• If you’re a loan borrower: Ask your bank to shift to repo-linked loans.

• If you’re a saver: Consider debt mutual funds, corporate FDs, or short-term bonds.

• If you’re an investor: Look at banking and auto stocks that benefit from rate cuts.

Summary of RBI Repo Rate Cuts in 2025

• RBI cut repo rate by 0.75% (75 bps) in 3 steps: Feb, Apr, Jun

• Current repo rate as of July 2025 = 5.25%

• Rate cuts helped reduce loan EMIs and boosted demand

• Fixed deposit rates have also reduced

• No further cuts expected unless inflation or GDP worsens

🙋‍♂️ Final Thoughts

Understanding repo rate is important for every Indian. It affects your loans, EMIs, savings, investments, and business planning.

In 2025, RBI’s repo rate cuts were made to boost growth and support borrowers. This is a good time to reduce your loan burden, shift to cheaper loan options, and plan your investments smartly.

Stay informed, think ahead, and keep visiting FinanceGyan.org.in for more easy-to-understand money tips.

 

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