The Reserve Bank of India (RBI) has reduced the REP rate by 25 basic points, which means that it is falling from 6.25% to 6% – a movement that is expected to alleviate the loan costs for private individuals and companies. RBI Governor Sanjay Malhotra announced the decision during the first Monetary Policy Committee (MPC) meeting of FY26, held from 7 to 9 April. This is the second consecutive reduction after a comparable rate reduction in February.
What is the Repo rate?
The Repo rate is the interest rate with which the RBI lends money to commercial banks for short-term needs, usually against government effects. It is an important tool that is used by the Central Bank to manage inflation and liquidity in the economy.
Why did the RBI reduce the repo speed?
The RBI reduces the REP rate if it wants to inject more liquidity in the system and encourage economic activity – especially when inflation is under control. For FY26, the RBI has projected the inflation of the consumer price index (CPI) at 4%, comfortable within its target range of 2-6%.
Worldwide uncertainties about trade tensions caused by the mutual rates of US President Donald Trump have also influenced the decision because they pose risks for global growth and the export of India.
How will it influence you?
- Loan EMIs can become cheaper – with the report of the Repo rate, banks and financial institutions can borrow funds from the RBI at lower costs. This can reduce interest rates on home loans, car loans and new personal loans. However, the actual reduction of EMIs depends on how quickly and to what extent individual banks pass on the benefits to consumers.
- Impact on fixed deposits – while borrowers can cheer, fixed deposits (FD) investors could see a disadvantage. As the credit rates fall, banks can also lower the interest rates on deposits to protect their margins. New FD investors can achieve a lower return than those who are previously locked up at higher rates. If you are planning to invest in FDs, it might be wise to do this before banks revise the rates down.
- Personal borrowers from loans – if you already have a personal loan, especially one with a fixed interest, your EMI will probably remain the same. But if you are planning to take out a new personal loan, the rate reduction can mean lower interest rates and more affordable refunds.
Governor Sanjay Malhotra said that the Indian economy was on schedule, so that GDP growth was projected at 6.5% for FY 2025-26. This is the quarterly breakdown:
- Q1: 6.5%
- Q2: 6.7%
- Q3: 6.6%
- Q4: 6.3%
He also said that the agricultural sector looks promising because of healthy reservoir levels and the robust crop production. The production and service sectors show signs of generation and urban consumption is gradually picking up. Investment activity increases, supported by strong business and bank balances and continuous focus on the government on infrastructure.
