Repo Rate Slashed: Relief for Borrowers or Just a Mirage for Metro Homebuyers?
The second consecutive cut in the Repo Rate (RR) in 2025 by the Reserve Bank of India (RBI), bringing it to 6%, is a bold move to boost India’s economic momentum. This year in April, the as the inflation settled down to a six-year low of 3.16%, the central bank’s strategy became clear – fuel demand and investment by making borrowing cheaper.
This ease of monetary movement might sound good in theory, especially for home loan consumers, but there is still uncertainty about what its real impact could be on buyers in high-cost metro cities. In order to understand whether this year’s downsizing in RR will bring a break for borrowers of home loan or have limited ground-level relief, let’s start with understanding the role of RR first.
In simple terms, the Repo Rate is the interest rate at which commercial banks borrow money from the RBI. Any adjustment in this rate eventually impacts the interest rates across the Indian economy. Therefore, lowering of RR should traditionally lead to reduction in loan interest rates, including home loans. This, in turn, would encourage public spending and investment, thereby boosting the national economy.
The accommodative stand of the RBI in this case indicates that the RR could be further reduced to 5.75% by mid-2025. However, any potential rate cuts would be dependent on the performance of economic indicators and monsoon. As of now, the experts say that the current environment is supportive in this regard.
Theoretically, a reduction in RR should automatically result in lower home loan rates, in turn, passing on the benefit of decreased EMIs to the borrowers. Some banks, like the Bank of India and Indian Bank, have already reduced their RR-linked benchmark lending rates following the last Repo Rate cut.
Much to the chagrin of home loan consumers, this transmission between rate cuts at the level of RBI and individual banks is neither immediate nor uniform. Several factors are responsible for this, like credit risk assessments, existing loan agreements, cost of funds, which either delay or dilute the benefits before they reach the borrowers.
Another major reason why slight reduction in interest rates of home loans doesn’t have a significantly positive impact on the homebuyers’ financial freedom is the fact that in metro cities, property prices are exorbitant already.
Some food for thought
While everyone agrees that Repo Rate adjustments are crucial tools that stimulate economic growth in the country by making it more affordable for consumers to borrow from banks. However, the effectiveness of these cuts in providing relief to home loan consumers in particular, is more nuanced. The transmission of monetary benefits from the RBI to the consumer is guided by the interplay between market realities and policy decisions.
(The writer is a seasoned Banker and Mortgage Specialist working for India’s largest loan distributor company and occasional political commentator.)
