RBI Lowers Repo Rate to 6%: A Strategic Move to Boost Growth in FY26
In a significant development for borrowers and businesses, the Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points, bringing it down from 6.25% to 6%. The announcement was made by RBI Governor Sanjay Malhotra during the first Monetary Policy Committee (MPC) meeting of FY26, held from April 7 to 9, 2025. This marks the second consecutive rate cut, following a similar move in February.
What is the Repo Rate?
The repo rate is the rate at which the RBI lends money to commercial banks against government securities. It serves as a critical tool for the RBI to manage inflation, control liquidity, and influence overall economic growth. A lower repo rate typically encourages banks to borrow more, enabling easier credit flow to businesses and individuals.
Why Did the RBI Cut the Repo Rate Again?
The decision comes as the RBI aims to stimulate economic growth without stoking inflation. With CPI inflation projected at 4% for FY26—well within the central bank’s comfort range of 2–6%—there’s more room to push growth-oriented policies.
Additionally, global uncertainties triggered by US trade tariffs and a volatile export environment have added pressure to shield India’s economy from external risks.
Impact on Borrowers: Cheaper Loans, Easier EMIs
This move could be great news for homebuyers and new loan seekers. With the repo rate now at 6%, banks can borrow funds from the RBI at a reduced cost, which may lead to lower interest rates on home loans, auto loans, and personal loans.
However, the extent and speed at which individual banks pass on the benefit will determine the actual impact on EMIs (Equated Monthly Installments). Borrowers with floating interest rate loans are more likely to benefit quickly.
Impact on Fixed Deposits: Lower Returns Ahead?
While borrowers can celebrate, fixed deposit (FD) investors may face reduced interest rates. As banks adjust their lending rates, they often lower deposit rates to protect margins. This means new FD investors might earn less compared to those who locked in at higher rates earlier.
If you’re considering parking your money in FDs, it might be wise to do so before banks revise their interest rates downward.
What About Existing Loans?
- Fixed-rate loans: Your EMIs will remain unchanged.
- Floating-rate loans: You could see lower EMIs in the coming months.
- New personal loan borrowers: Now is a good time to take advantage of potentially lower rates and affordable repayment options.
Positive Economic Outlook: GDP Growth of 6.5% Forecasted for FY26
RBI Governor Sanjay Malhotra emphasized that the Indian economy is on a solid recovery path, projecting a GDP growth of 6.5% for FY26. Here’s the quarterly breakdown:
- Q1: 6.5%
- Q2: 6.7%
- Q3: 6.6%
- Q4: 6.3%
Key highlights from his statement:
- Agriculture sector remains promising due to strong water reservoir levels and good crop yield
- Manufacturing and services sectors are witnessing a revival
- Urban consumption is improving steadily
- Investment activity is gaining momentum, backed by corporate and banking sector strength and continued government push on infrastructure development