Home loan EMIs to ease further as RBI cuts repo rate by 50 bps

This latest rate cut is set to bring down home loan interest rates, resulting in lower EMIs or a shorter loan tenure. In addition, the central bank has reduced the Cash Reserve Ratio (CRR) by 100 basis points—from 4% to 3%—which is expected to ease liquidity conditions and make it easier for banks to lower home loan rates.

In its monetary policy meeting today, the RBI also shifted its policy stance from accommodative to neutral.

This indicates that, following a total 100 bps cut in the repo rate so far, the likelihood of further rate reductions is uncertain and will now be guided primarily by inflation and growth data.

According to an Economic Times report, Aman Trehan, Executive Director at Trehan Iris, said the RBI’s 50 basis point repo rate cut to 5.5% would significantly benefit the real estate sector by lowering borrowing costs and boosting homebuyer sentiment, especially in the affordable and mid-income segments. He added that the 100 basis point CRR cut would improve liquidity, enabling banks to transmit the benefits more efficiently.

Deepak Kumar Jain, Founder and CEO of CredManager, noted that with the RBI’s third rate cut this year, totalling 100 basis points, borrowers stand to benefit from reduced EMIs. He pointed out that while each cut may seem modest, the cumulative impact eases loan burdens—for example, saving over ₹3,000 a month on a ₹50 lakh loan over 20 years—thus improving affordability in a high-cost housing market, according to the report.

Why the RBI went for a third rate cut?

The RBI’s decision to go ahead with another repo rate cut was driven by multiple factors. A Bajaj Broking report noted, "Headline CPI inflation remains consistently below the RBI's medium-term target of 4%."

Government data supports this trend, showing that CPI inflation was 3.34% in March 2025 and further declined to 3.16% in April.

According to an SBI Research report, "CPI Inflation may come down to 2.9% in Q1 FY26 as food inflation is expected to be within the target in June quarter. Above normal monsoon prediction by IMD, strong arrival of crops and decline in crude oil prices revising down our CPI estimate to 3.5% in FY 26 with downward bias."

How the rate cut impacts home loan borrowers?

According to the ET report, a home loan borrower with an outstanding loan of ₹50 lakh at an 8.5% interest rate over 20 years stands to gain significantly from the cumulative 100 basis points rate cut announced by the RBI.

The total interest payable over the loan tenure reduces from ₹54.14 lakh to ₹46.67 lakh — a savings of ₹7.47 lakh.

If the borrower chooses to maintain the original 20-year tenure, the monthly EMI will drop from ₹43,391 to ₹40,280, leading to a monthly saving of ₹3,111.

Alternatively, by keeping the EMI unchanged at ₹43,391, the borrower can shorten the tenure from 20 years to 17 years. This results in substantial interest savings amounting to ₹15.44 lakh.

Credit growth concerns add pressure

Another key factor behind the RBI’s rate action is the weakening credit growth. As per SBI Research, credit growth among commercial banks fell to 9.8% as of May 16, 2025, compared to 19.5% a year earlier.

During April and May, credit actually contracted by ₹15,676 crore, while deposits increased by ₹3.06 lakh crore. Since sustained credit growth is vital for economic momentum, lowering interest rates is a tool to revive borrowing demand.

Growth momentum remains sluggish

The RBI is also responding to signs of a slowing economy. "GDP growth appears to be softening, worsened by external shocks such as trade disruptions from recent U.S. policy moves," Bajaj Broking noted.

With inflation currently under control, the central bank is shifting its priority to stimulating economic growth through a more accommodative rate regime.

More repo rate cut in the FY26?

The SBI research report anticipates that the RBI will cut the repo rate by 100 basis points in FY 2025-26. The central bank has already reduced the repo rate by 25 basis points in April 2025. With the current cut of 50 bps, there is still scope for 25 bps reduction in the coming months.