RBI May Drop Repo Rate by 75 BPS from April 1, Says SBI Research; How Will It Impact Borrowers?

The Reserve Bank Of India (RBI) is likely to cut the repo rate by 75 basis points (BPS) for the Financial Year 2025-26, as per SBI Research.

The central bank dropped the repo rate by 25 basis points (bps) to 6.25% from 6.50% on February 7, 2025. This was the first rate cut initiated by the RBI in five years since May 2020.

In its report titled “Same, Same But Different!” published on March 20, 2025, SBI Research stated that the RBI could initiate the first repo rate cut of FY 2025-26 during its monetary policy meeting in April 2025. According to the Research, RBI is expected to further cut the repo rate by at least 0.75%.

SBI Research highlighted that since the prices are stable and not rising too quickly, the RBI might reduce the repo rate by a total of 75 basis points over time. The first rate cut is likely in April 2025 and another in August 2025. The rate-cut cycle might restart in October 2025.

How will it Impact Borrowers?

It will benefit the borrowers from further reduction in the RBI’s key lending rate if they have a home loan or any other loan linked to the repo rate or are planning to do so. Since repo rate-linked loans fluctuate based on the RBI’s repo rate, any decrease in the repo rate influences banks to lower interest rates on such loans. On the other hand, when the repo rate increases, loan rates also rise.

After the RBI’s repo rate cut in February 2025, many banks have already declined the interest rates for home loans for new borrowers and existing borrowers. If the repo rate is further reduced in FY 2025–26, home loans will become even more affordable for the borrowers.

Understanding Inflation Trends

In February 2025, CPI inflation dropped to 3.6%, its lowest level in seven months, due to a decline in food and vegetable prices. However, inflation rates varied across different states. According to SBI Research, some bigger states experienced higher inflation than the all-India average. The RBI modifies the repo rate every two months in its monetary policy meetings to control inflation.

As per the report, the Consumer Price Index (CPI) inflation is expected to reduce to 3.9% in Q4 in FY25 and average to 4.7% in FY25. On this basis, it can be expected that inflation in FY26 may come to 4.0%–4.2%, while core inflation could be between 4.2% and 4.4%.