Reserve Bank of India on Friday cut the repo rate by 50 basis points to 5.5% and shifted its monetary policy stance from 'accommodative' to 'neutral', marking a mixed outcome for borrowers and savers.
Announcing the decision after the Monetary Policy Committee's meeting in Mumbai, RBI Governor Sanjay Malhotra said the move is aimed at lowering borrowing costs amid a favourable inflation outlook.
The move brings immediate relief to home loan borrowers. Those with loans linked to the External Benchmark Lending Rate are likely to see interest rates fall in the upcoming reset cycle. "Rate cut makes home loan EMIs easier, improving affordability," said Anarock Property Consultants.
"Affordable and mid-income segments to potentially see demand boost," they further stated, adding that "affordable housing sales share declined from 38% in 2019 to 18% in 2024." This move is set to be a positive development in the space.
The impact could be quick — on a Rs 1 crore home loan over 20 years, EMIs may drop by around Rs 6,000. Borrowers can also opt to maintain current EMIs and reduce their loan tenure, potentially saving lakhs in interest payments.
"Lower lending rates will help revive household demand and spur credit growth," Malhotra said, noting that the central bank's intent is to support consumption without stoking inflation.
However, the cut is less welcome news for savers. Banks are expected to lower fixed deposit interest rates, particularly for short- and medium-term tenures. For instance, if a one-year FD rate drops from 7% to 6.5%, a Rs 10 lakh deposit would earn Rs 5,000 less per year.
Existing FDs will remain unaffected until maturity, but reinvestment at lower rates is likely to dent returns. Senior citizens, who typically earn 0.25-0.5% more on FDs are not fully insulated either. Financial advisors recommend locking in current rates or considering alternatives such as debt mutual funds or government bonds.
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