The Reserve Bank of India (RBI) reduced the repo rate by 50 basis points during its second monetary policy meet on Friday, June 6, bringing relief to the common man and new loan borrowers. The welcome decision will reduce Equated Monthly Instalments (EMIs) for those who have taken loans, meaning existing borrowers may expect a decrease in their monthly instalments.
The interest rate at which the RBI lends to banks now stands at 5.50%, down from 6% with the recent repo rate cut. This marks the third interest rate cut by the Central Bank since the COVID-19 pandemic. The RBI kept the repo rate unchanged between May 2020 and April 2022, while from April 2022 to February 2023, it gradually increased its policy rates to 6.5%, maintaining this rate for two years until the recent reductions.
Also Read | RBI Keeps Real GDP Growth Rate Forecast Unchanged at 6.5% for 2025–26.
"The Monetary Policy Committee met on the 4th, 5th and 6th of June, that is, today, to deliberate and decide on the policy repo rate. After a detailed assessment of evolving macroeconomic and financial developments and the economic outlook, the MPC decided to reduce the policy repo rate under the Liquidity Adjustment Facility by 50 basis points to 5.5%, a move that was widely expected... Consequently, the Standing Deposit Facility (SDF) rate shall stand adjusted to 5.25%, and the Marginal Standing Facility (MSF) rate and the Bank Rate shall stand adjusted to 5.75%.," RBI Governor Sanjay Malhotra said.
“We welcome the RBI’s decision to cut the repo rate by 50 basis points. This proactive step underscores the central bank’s focus on supporting economic revival while keeping inflation in check. For the real estate sector, particularly residential and affordable housing, this reduction improves home loan affordability and enhances buyer sentiment, both of which are closely tied to interest rate dynamics,” said Rahul Singla, Director, Mapsko Group.
"At a time when demand for value-driven investments is rising, this move can act as a catalyst for renewed activity in the housing market. While liquidity remains a concern, the RBI’s balanced approach fosters a favourable environment for long-term, sustainable growth. We urge lending institutions to pass on the benefits promptly, as this rate cut could generate a positive ripple effect across the real estate and allied sectors," Singla said further.
Why Did the RBI Cut the Repo Rate for the Third Time This Year?
Several reasons prompted the RBI to consider a third repo rate cut. According to a Bajaj Broking report, "Headline CPI inflation remains consistently below the RBI's medium-term target of 4%." According to government data, CPI inflation in March 2025 was 3.34%, which further decreased to 3.16% in April 2025.
"CPI inflation may come down to 2.9% in Q1 FY26 as food inflation is expected to be within the target in the June quarter. Above-normal monsoon predictions by the IMD, strong crop arrivals, and a decline in crude oil prices have led us to revise our CPI estimate down to 3.5% in FY26, with a downward bias," stated the SBI Research Report.
Also Read | Repo Rate Cut By 50 Basis Points Announces RBI Governor Sanjay Malhotra.
Another reason for the RBI's decision is the expectation of muted credit growth in the financial year 2026. Commercial banks' credit growth declined to 9.8% as of May 16, 2025, compared to 19.5% in the previous year, according to the SBI Research Report. During April and May, credit declined by Rs 15,676 crore, while deposits grew by Rs 3.06 lakh crore. A decent credit growth rate is essential for the economy to maintain momentum, and a lower interest rate helps boost credit demand, according to an Economic Times report.
The country's economy is also not growing at a rate that matches its true potential. "GDP growth appears to be softening, worsened by external shocks such as trade disruptions from recent US policy moves," said Bajaj Broking in its report.