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At the RBI MPC Meeting in 2025, the RBI lowers the repo rate by 25 basis points to 6.25% for the first time in five years and projects 6.7% GDP growth in FY26.
Meeting of the RBI MPC in February 2025: After maintaining it at the same level for two years, the Reserve Bank of India's (RBI) six-member Monetary Policy Committee (MPC) reduced the repo rate, or the rate at which the RBI lends to other banks, by 25 basis points to 6.25% on Friday. The RBI hasn't lowered interest rates in five years, with the most recent one occurring in May 2020.
As of right now, the repo rate is 6.5%. The action was taken just one week after the Centre lowered personal income taxes in an effort to increase spending.
In an attempt to boost economic activity by making borrowing more affordable, the RBI's MPC unanimously decided to decrease the repo rate, which in turn encouraged investment and spending.
How about the GDP forecast?
Approximately 6.7% GDP growth is projected by the central bank for the upcoming fiscal year, Governor Sanjay Malhotra declared. Approximately 6.7% GDP growth is projected by the central bank for the upcoming fiscal year, Governor Sanjay Malhotra declared. Additionally, the MPC forecasted retail inflation to be 4.2% for fiscal 2025–2026 and CPI inflation to be 4.8% for FY25.
Based on a "strong external account, calibrated fiscal consolidation, and stable private consumption," the administration predicted a growth rate of 6.3-6.8% for 2025–2026 in the Economic Survey that was published before to the Budget.
This occurred against the backdrop of a declining economy, with growth predicted to be 6.4% in 2024–2025.
What occurs if the repo rate is lowered?
All external benchmark lending rates (EBLR) that are tied to the repo rate will decrease when the RBI lowers the repo rate, which will benefit borrowers by lowering their equated monthly installments (EMIs).
In cases where the full transmission of a 250 basis point increase in the repo rate between May 2022 and February 2023 has not occurred, lenders may also lower interest rates on loans that are tied to the marginal cost of fund-based lending rate (MCLR).
How Much Will You Save?
Example
let's say you have a Rs 50 lakh home loan with a 20-year term and an interest rate of 8.5%. Your interest rate would decrease to 8.25% as a result of the 25 basis point rate cut. This is how it affects your EMI each month:
Old EMI: Rs 43,059 (at 8.5%) New EMI: Rs 42,452 (at 8.25%) You thereby save almost Rs 607 every month. This amounts to a savings of Rs 7,284 over a year. |
Example of a Personal Loan:
Assume you have a Rs 5 lakh personal loan with a 5-year term and a 12% interest rate. With the rate reduction of 0.25%, your EMI would decrease from:
Old EMI: Rs 11,282 (at 12%). New EMI: Rs 11,149 (at 11.75%) You would save Rs 1,596 annually, or Rs 133 each month, by doing this. |
Example of an Auto Loan:
If you have a Rs 10 lakh automobile loan with a 7.5% interest rate and a 7-year period, a 25 basis point reduction will lower your EMI from:
Old EMI: Rs 16,659 (at 9.5%) New EMI: Rs 16,507 (at 9.25%) This results in a monthly savings of Rs 152, or Rs 1,824 yearly. |
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