RBI Repo Rate Cut: The Reserve Bank of India (RBI), taking a shocking decision in June MPC, has made a big cut of 50 basis points (BPS) in the repo rate. Now this rate has come down from 6.00% to 5.50%. This decision of the meeting led by RBI Governor Sanjay Malhotra will provide relief to those taking new home loans. Home loans, car loans and personal loan rates may be low. However, there is also a negative aspect of this. Interest on the repo rate cut on a fixed deposit (FD) may also be deducted.
How much will those taking home loans benefit?
Tax and investment experts believe that the reduction of repo rates by 50 BPS can reduce home loan interest rates, provided the banks pass the benefit to the customers. The benefit of the last two rates was given by public sector banks to customers within a few days. However, private sector banks delayed some.
RBI also cut 25–25 basis points in February and April 2025. That is, a total of 100 BPS has been cut so far this year. Experts say that this is a golden opportunity for those who had postponed the decision to buy the house till now. Now if someone takes a home loan of ₹ 50 lakh for 20 years, then the monthly EMI can save from ₹ 3,800 to ₹ 4,000.
Bank FD returns may affect
However, unlike home loans, this news may be a bit negative for FD investors. Experts believe that as soon as banks reach the new rates of RBI to the customers, they can also cut their deposit rates. This can cause problems to senior citizens, because their more money remains with banks in the form of FD.
Experts suggest that FD investors should book their FD at the current rates now, as the old FD does not affect the new rates. If they miss, they can also look at options such as small saving schemes of the post office. The government decides the interest on the investment there separately.
Why decreasing interest rate after rate cut
When the RBI cuts the repo rate, banks start getting loans at a lower interest rate from the central bank. This reduces the funding cost of banks and make the loans cheaper so that more debt can be distributed.
But along with this, banks also reduce interest rates on deposits, especially on fixed deposits (FD), because they no longer need to raise as much money from the savings or it is cheaper. For this reason, interest rates on FD are usually reduced after the repo rate cut.
Also read: Home Loan EMI: How much will be the benefit in EMI and tenure after repo rate cut, understand complete calculation