The Reserve Bank of India (RBI) has cut the repo rate by 50 basis points, bringing it down to 5.5 per cent and making loans cheaper for millions across the country.
Why Was the Repo Rate Cut?
The repo rate is the interest rate at which the RBI lends money to commercial banks. When the RBI reduces this rate, banks can borrow funds at a lower cost. This usually leads to banks lowering their own lending rates, making loans more affordable for consumers and businesses. The central bank’s decision to cut the repo rate by 50 basis points—more than what most experts had predicted—shows that the RBI is taking strong steps to support the Indian economy at a crucial time.
One of the main reasons behind this move is the sharp drop in inflation. Retail inflation fell to 3.16 per cent in April, well below the RBI’s target of 4 per cent. Prices of essential goods and services have stabilised, giving the RBI room to focus on growth rather than just controlling prices. The RBI Governor, Sanjay Malhotra, said in his statement that with inflation now under control, the central bank can shift its attention to boosting economic activity.
The Indian economy has been facing several challenges in recent months. Growth has slowed, with the RBI lowering its GDP growth forecast for the current financial year to 6.3 per cent. Global uncertainties, such as weak demand for exports and ongoing geopolitical tensions, have also affected the country’s economic outlook. By cutting the repo rate, the RBI hopes to encourage more borrowing and spending, which can help revive growth.
Impact on Borrowers, Businesses, and the Economy
The immediate effect of the repo rate cut will be felt by borrowers. Banks are expected to pass on the benefit of the lower repo rate to customers by reducing their lending rates. This means that people with home loans, car loans, or personal loans will see their EMIs come down. For new borrowers, it will be easier and cheaper to take loans for buying homes, vehicles, or starting new businesses.
The move is also expected to help businesses, especially small and medium enterprises (SMEs), which often rely on bank loans for working capital and expansion. With lower interest rates, businesses can borrow at a lower cost, invest in new projects, and create more jobs. This could help boost overall demand in the economy and support growth at a time when global conditions remain uncertain.
The RBI has also changed its policy stance from ‘accommodative’ to ‘neutral’. This means that the central bank will now keep a close watch on both inflation and growth before making any further changes to the repo rate. The RBI Governor made it clear that while inflation is currently under control, the central bank will remain vigilant and act if prices start rising again.
This repo rate cut is part of a global trend, as many central banks around the world are lowering interest rates to support growth. With inflation easing and growth slowing, the RBI’s move is seen as timely and necessary by most analysts.
For the average Indian, the RBI’s decision spells good news. Lower EMIs will provide relief to households, leaving more money in their hands to spend on other needs. For businesses, cheaper loans could mean more investment and expansion, helping to create jobs and support the economy.
