RBI Reduces Repo Rate By 25 Basis Points: Good News For Borrowers As Home Loan EMIs Are Set To Drop Even More

Home loan borrowers are having a great year in 2025. The year has started with the RBI cutting the repo rate by 25 basis points, and now the central bank has announced another 25 basis point cut. This is good news for people with floating-rate home loans, as their EMIs are expected to go down soon once banks start passing on the benefits.

With this latest cut, the repo rate is now 6%. The RBI Governor also said that the monetary policy stance has shifted from “neutral” to “accommodative.” This means that more rate cuts could happen in the future, which may lead to even lower interest rates on home loans.

According to an expert, the Reserve Bank of India (RBI) has decreased the repo rate by 25 basis points, bringing it down to 6%, as part of its ongoing efforts to stimulate consumption and accelerate economic growth. Lowering the policy rate is meant to encourage borrowing, which can lead to more investment in real estate and higher demand for housing. However, how much this rate cut actually helps will largely depend on how quickly and effectively commercial banks pass on the lower rates to borrowers. For the move to have the desired impact, banks need to respond promptly and efficiently.

As per the latest updates, the Monetary Policy Committee has not only reduced the repo rate by 25 basic points but also shifted its outlook from neutral to accommodative. Basically, now the Monetary Policy Committee will only consider two possibilities: status quo or further rate cuts, says some experts.

How much can you reduce your home loan EMIs after two repo rate cuts?

The co-CEO of Andromeda Sales and Distribution Private Limited breaks down how much home loan borrowers can save on their EMIs following the 50 basis point cut in the repo rate. For a 20-year home loan, if the interest rate drops from 9% to 8.5%, the reduction can lead to considerable monthly savings:

For example, A borrower takes a loan of Rs. 50 lakhs, then he/she will need to suffer a monthly EMI of Rs. 1960 till the tenure period of 20 years; the rate cut will result in total savings of Rs 4.70 lakh.

RBI MPC Meeting: Can we expect a rate cut in the coming months?

The central bank is responsible for keeping inflation within a target range of 4%, with a tolerance of plus or minus 2%, meaning between 2% and 6%. According to the State Bank of India’s Economic Research Department, CPI inflation in India dropped to a 7-month low of 3.6% in February 2025, mainly due to a sharp fall in food and beverage prices. In its report, the department also projected inflation for FY26 to stay between 4.0% and 4.2%, while core inflation is expected to range from 4.2% to 4.4%.

Based on this outlook, the RBI is likely to introduce more rate cuts in April and August 2025, with a total reduction of at least 75 basis points anticipated.

It’s worth noting that in its February policy meeting, the RBI already lowered the repo rate by 25 basis points, from 6.50% to 6.25%. While announcing this cut, RBI Governor stated, “Inflation has come down. With a positive outlook on food prices and the ongoing effects of previous policy measures, it’s expected to ease further in 2025–26 and move closer to the target.”

Recently, the United Kingdom has put over tax of 26% on Indian imports. Economists believe this could decrease India’s GDP growth for 2025–26 from 0.20% to 0.40%, bringing it down to about 6.1% from the RBI’s earlier estimate of 6.7%. As a result, the RBI might go for more rate cuts to support the economy.

Home Loan Borrowers: What You Should Do Now

For home loan borrowers, how soon your EMI (monthly payment) goes down depends on two things — how quickly the RBI cuts rates and how fast your bank or lender passes those rate cuts on to you.

According to an expert, with today’s 25 basis point cut, home loan rates are expected to decrease below 8% again. Right now, the lowest rates being offered are between 8.10% and 8.35%, but these are usually available only to borrowers with high credit scores (above 750) or those refinancing their loans.

If you’re currently paying a rate that’s significantly higher (by 50 basis points or more) than what’s being offered in the market, it might be a good idea to refinance your loan to get a better deal.

Keep in mind that only repo-linked home loans from banks get the full benefit of rate cuts immediately and automatically. However, many borrowers are still on older rate systems — around 50% of floating-rate loans with government banks are still tied to MCLR (Marginal Cost of Lending Rate), and 2% are linked to the even older Base Rate.

If you’re in this group, it’s a good time to check which benchmark your loan follows. Switching to a repo-linked loan could help you save on interest payments.

If your loan is linked to EBLR (External Benchmark Lending Rate):

Future EMI reductions will depend on how often the RBI cuts rates. As per RBI rules, banks must reset interest rates at least once every three months. So if your bank hasn’t adjusted your rate yet after the February 2025 cut, it should do so by May 2025.

If your loan is still linked to MCLR, Base Rate, or BPLR:

These older rating systems were in place before October 2019. If your home loan is still tied to one of these, it’s important to consider switching to a loan based on EBLR. This could help you benefit from future rate cuts and reduce your EMIs.