Impact of RBI Rate on Loan EMI
The Monetary Policy Committee (MPC), led by the Reserve Bank of India, announced decrease in repo rate by 50 basis points on 6 June 2025. The current repo rate is 5.50% while the reverse repo rate stands unchanged at 3.35%.
The Bank Rate and the Marginal Standing Facility (MSF) rate is 5.75%. The Standing Deposit Facility Rate is now 5.25%.
This will directly result in a decrease in the Equated Monthly Instalments (EMI) of different kinds of loans.
What is Repo Rate?
Borrowers take loans from banks and financial organizations, who provide these loans after charging a certain amount of interest. Therefore, the rate at which the borrower takes the loan is known as the Cost of Credit.
In the very same manner, banks and financial organizations borrow money from the Reserve Bank of India by selling their surplus government securities. to maintain liquidity. The rate at which they borrow money is referred to as repo rate.
A high Repo Rate will result in a higher cost of short-term funds. Similarly, if the Repo Rate is low, it automatically brings down the amount of interest which banks will have to pay on the borrowed funds.
Therefore, if the Repo Rate is low, it allows banks to charge lower interest rates on the loans which they offer to their customers. Additionally, a lower Repo Rate can also contribute greatly towards generating a positive growth in the economy.
Impact of Current Repo Rate on Loan EMIs
The repo rate has been reduced by the Monetary Policy Committee (MPC) of the Reserve Bank of India on 6 June 2025 by 50 basis points. The latest repo rate stands at 5.50% after a drop from 6.00%.
A 50-basis points rate cut on a Rs.50 lakh home loan at 8.50% for 20 years lowers the interest rate to 8.00%, reducing the EMI from Rs.43,059 to Rs.41,822. This leads to a monthly saving of Rs.1,237 or Rs.14,844 annually. Though small, these savings add up significantly over time.
Impact of the Latest Repo Rate on Existing Loan Borrowers
Existing loan borrowers will not see immediate changes in their EMI amount, even though many banks will change their MCLR in response to the rate cut by RBI. There is however, a possibility of a change in loan tenure. This will in turn reduce the effective cost of the loan as the number of EMIs to be paid will go down.
Lenders may offer either an EMI reduction or a tenure cut after a rate cut. Choosing a tenure cut while keeping the EMI unchanged helps save on total interest. For example, on a Rs.50 lakh loan at 9% for 20 years, a 50-basis points rate cut lowers interest by Rs.8 lakh and shortens the tenure by 18 months. A 25 basis points cut reduces interest by Rs4.40 lakh and shortens the tenure by 10 months. This approach ensures significant long-term savings.
FAQs on Impact of RBI Rate Increase on Loan EMI
- What is the current repo rate?
The current repo rate stands at 5.50%
- Who sets the repo rate?
The repo rate is set by the Monetary Policy Committee. The committee which was constituted by the central government under section 45ZB meets at least four times a year and is responsible for fixing the benchmark interest rate in the country.
- How many members are part of the Monetary Policy Committee?
The Monetary Policy Committee (MPC) consists of six members. Of the six, three members are nominated by the government while the rest are officials of the central bank i.e., Reserve Bank of India
- Does reduction in the repo rate affect EMI?
Your EMI will come down only if you have availed a repo-linked loan. In case of a repo-linked loan, the RLLR will increase or decrease as per the repo rate.
- I availed a home loan which offers a floating rate of interest, will the interest rate change if there is a change in the repo rate?
Yes, there is a chance that there will be a change in the interest rate if the lender changes the 1- year MCLR as most home loans are based on this lending rate.
News on Impact of RBI Rate on Loan EMI
The Reserve Bank of India Maintains Repo Rate at 5.5%
The Reserve Bank of India (RBI) keeps its repo rate unchanged at 5.5%. The RBI governor, Sanjay Malhotra, on Wednesday made the welcoming announcement. The RBI’s Monetary Policy Committee made the widely expected decision after carefully reviewing the recent financial and economic conditions. The RBI has cut the policy repo rates by 100 basis points in 2025 so far, as price pressures softened.
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