RBI Likely To Cut Repo Rate: Will It Impact Your Personal Loan EMIs?
Interest rates on loans, particularly on personal loans, will likely be impacted if the RBI chooses to lower the repo rate, as predicted by experts.
The Reserve Bank of India (RBI) may go for another repo rate cut of 25 basis points during its monetary policy review meeting, the outcome of which, will be announced on Wednesday.
If this happens, it will be the second reduction in the key lending rates this year, following the first rate cut in February.
The RBI reduced the repo rate by 25 basis points earlier this year, bringing it down to 6.25%. The reduction in repo rate will surely bring relief to personal loan borrowers.
The 54th meeting of the Monetary Policy Committee (MPC) of the RBI started on Apr. 7. This is the first MPC meeting in FY26.
According to industry experts, RBI is expected to cut the key interest rate by up to 25 basis points, bringing it down to 6%. The MPC may go for another rate cut to aid growth amid the global economic uncertainties triggered by the tariffs announced by the United States, according to a PTI report.
Interest rates on loans, particularly personal loans, are likely to be impacted if the RBI chooses to lower the repo rate once again. The banks and non-banking financial companies (NBFCs) often revise their interest rates on personal loans and others with a change in repo rate. When the repo rate declines, banks reduce the interest rates on personal loans to benefit customers.
The repo rate, also known as the purchase agreement rate, is the interest rate charged by the RBI from commercial banks on the money it lends to them.
With every repo rate cut, by lowering interest rates on consumer loans, banks allow individuals to borrow more money. This aids in higher consumer spending. On the other hand, when inflation is on the rise, the RBI hikes the repo rate to make borrowing more costly, which prevents excessive spending and helps to control inflation.
EMIs likely to be reduced with another rate cut
With another possible repo rate cut, as indicated by experts, banks would be able to obtain funds from the RBI at a reduced cost. This is expected to benefit the customers by bringing down the equated monthly instalments (EMIs) on loans.
For example, if you have an ongoing personal loan and the repo rate declines, then the monthly payments will likely be reduced. Other than this, a lower repo rate can also shorten the duration of your loan. If your personal loan's interest rate drops, you might be able to pay it off faster while still making the same monthly payments.
However, the repo rate cut will benefit only if the personal loan is taken on a floating interest rate instead of a fixed rate. If your loan has a fixed interest rate, it will remain unchanged for the entire repayment tenure, even if the bank revises the interest rate.
