Key Points:
- RBI Governor Sanjay Malhotra reduces repo rate by 0.25% for the second time in 2025, bringing total reduction to 0.50%.
- Home loan EMIs drop significantly, saving borrowers up to ₹3.76 lakh in interest over 20 years for a ₹50 lakh loan.
- Auto loan EMIs also see reductions, saving borrowers ₹14,509 in interest over a five-year tenure for a ₹10 lakh loan.
- Experts predict increased demand for housing and real estate growth due to affordable loans.
New Delhi: The Reserve Bank of India’s new governor, Sanjay Malhotra, has brought cheer to borrowers across the country with his decisive action on interest rates. In just two months, Malhotra has reduced the repo rate by 0.50%, including a second consecutive cut of 0.25% in April after February’s reduction. This move directly impacts loan EMIs, making borrowing cheaper for both existing and new customers.
Impact on Loan EMIs
The reduction in repo rate means lower interest rates on loans as banks link most loans home loans, auto loans, and personal loans to the repo rate. Borrowers will immediately benefit from reduced EMIs, helping them save significantly over the tenure of their loans.
Savings on Home Loans
For instance, if you took a home loan of ₹50 lakh for 20 years at an interest rate of 8.50% before February, your EMI would have been ₹43,391 per month. After the 0.50% reduction in repo rate, the effective interest rate drops to 8%, reducing your EMI to ₹41,822 per month.
Here’s how much you save:
- Monthly Savings: ₹1,569
- Annual Savings: ₹18,828
- Total Savings Over 20 Years: ₹3,76,598 (in interest payments)
This reduction not only makes home loans more affordable but also boosts buyer sentiment in the real estate market.
Savings on Auto Loans
Similarly, an auto loan of ₹10 lakh for five years at an interest rate of 9% would have had an EMI of ₹20,758 per month before February. After the repo rate cut, the EMI drops to ₹20,517 per month.
Here’s how much you save:
- Monthly Savings: ₹241
- Annual Savings: ₹2,892
- Total Savings Over Five Years: ₹14,509 (in interest payments)
While the savings may seem smaller compared to home loans, they still provide relief to borrowers looking to finance their vehicles.
Expert Insights
Chintan Sheth, Chairman and MD of Seth Realty, views this move as a positive development for the real estate sector. “The reduction in repo rate will make home loans more affordable and encourage people to buy houses,” he said. Sheth added that this decision would benefit all segments affordable housing, middle-income buyers, and premium properties and also aid developers in completing projects.
The lower interest rates are expected to strengthen buyer sentiment and boost demand in the housing market while contributing to sustained growth across the sector.
Broader Implications
The RBI’s decision is being hailed as a game-changer for borrowers and businesses alike. Lower borrowing costs are likely to stimulate demand across sectors such as housing and automotive industries while providing relief to individuals struggling with high EMIs. Developers are optimistic about increased sales and project completions due to improved affordability.
With Governor Sanjay Malhotra’s proactive measures showing immediate results, this move marks a turning point for India’s economy by balancing growth with affordability. Borrowers can now look forward to easier financial planning and significant savings as they take advantage of lower loan rates.
