RBI Cuts Repo Rate to 5.25%; Home Loan Interest to Fall to Pandemic Lows

New Delhi, Dec 6 (IANS) — Following the Reserve Bank of India’s (RBI) Monetary Policy Committee decision to cut the repo rate by 25 basis points to 5.25 per cent, home loan interest rates are set to fall to levels last seen during the Covid-19 pandemic.

According to multiple media reports, borrowers can expect home loan rates to drop by around 25 basis points, bringing interest rates down to about 7.1 per cent. Several major public-sector banks — including Union Bank of India, Bank of India and Bank of Maharashtra — currently offer home loans at around 7.35 per cent.

Financial analysts estimate that on a ₹1 crore home loan over 15 years, a 0.25 per cent rate cut would reduce the EMI by approximately ₹1,440 per month.

Bankers say that with new home loans expected to be priced at 7.1 per cent, lenders will either have to sharply reduce deposit rates or revise the spread over the benchmark rate. This could mean that new customers end up paying higher rates than existing floating-rate borrowers.

While banks are likely to face pressure on net interest margins (NIMs) until deposit rates adjust, Non-Banking Finance Companies (NBFCs) stand to gain immediately from lower borrowing costs.

Analysts noted that RBI’s neutral stance, along with its liquidity-enhancing measures, would ensure efficient transmission of the rate cut across the financial system.

RBI announced plans for ₹1 trillion in open market operation (OMO) purchases and a three-year USD/INR buy-sell swap worth $5 billion, moves expected to inject around ₹1.45 trillion of liquidity into the market.

The MPC unanimously voted to reduce the repo rate from 5.5 per cent to 5.25 per cent in order to support economic growth.

Experts added that the RBI’s decision leverages the monetary space created by low inflation to stimulate consumption and strengthen the ongoing economic recovery cycle.