RBI holds repo rate at 5.5%: Will home loan borrowers see more relief ahead?

The Reserve Bank of India (RBI), in its recent Monetary Policy Committee (MPC) meeting, chose to keep the repo rate steady at 5.5%. On the surface, this may appear uneventful—but for home loan borrowers, the story is far from over. While no immediate relief was announced, economic signals suggest that the door to further rate cuts is still open.

Over the past year, borrowers have had reasons to smile. The RBI reduced the repo rate by 100 basis points (bps), from 6.5% to 5.5%, over successive MPC meetings until June. Since most home loans are on floating rates directly linked to the repo rate, any reduction trickles down quickly, translating into lower EMIs or shorter loan tenures. 

"Home loan rates have already fallen below 8% for prime borrowers, particularly in refinance and balance transfer cases. Borrowers still servicing loans at significantly higher rates should consider switching to repo-linked products to reduce long-term interest costs," said Adhil Shetty, CEO, BankBazaar.com.

Are more rate cuts on the horizon?

Retail inflation remains a key factor guiding the Reserve Bank of India’s (RBI) decisions on policy rates. Over the past eight months, retail inflation in India has consistently declined, reaching 2.1% in June 2025—its lowest level in the last year. A lower inflation rate typically gives the RBI more room to reduce policy rates.

However, despite the current low inflation, the central bank is unlikely to base future decisions solely on these numbers, as they have already been considered in earlier rate cuts. Instead, the RBI is expected to focus on the long-term inflation outlook before making any further moves.

The bond market seems to echo this sentiment. The 10-year government bond yield, which climbed to 6.843% on January 13, dropped to 6.16% by May 29. Since then, it has stabilised around 6.3%, signaling that the market does not anticipate substantial rate cuts in the near term. Nonetheless, the effects of previous rate cuts are still working their way through the system.

Home loan rates in the coming months

A home loan is a significant long-term financial obligation. Given the large loan amounts and extended repayment periods, even small changes in interest rates can lead to substantial differences in overall costs. In case, the repo rates are reduced in the next meetings this financial year, home loan interest rates will be affected across banks.

Shetty illustrates this with an example:

A borrower with a Rs 50 lakh home loan at an 8.5% interest rate over 20 years pays an EMI of approximately Rs 43,391. Over the entire tenure, this adds up to nearly Rs 54 lakh in interest, bringing the total repayment to over Rs 1 crore.

Following the rate cut, if the interest rate drops to 7.25%, the borrower will have two attractive options:

Option 1: Reduce the EMI to Rs 39,574 while keeping the tenure unchanged. This eases monthly cash flow and still saves over Rs 9 lakh in interest.

Option 2: Maintain the same EMI and shorten the loan tenure. The loan would then be repaid in about 16.5 years instead of 20, saving over Rs 11 lakh in interest.

Both options can have significant benefits — one provides immediate monthly relief, while the other accelerates debt repayment and long-term savings. The right choice will depend on the borrower’s income stability, financial goals, and risk appetite.

Markets positive

With inflation cooling and global uncertainty rising — especially after the US imposed a 25% tariff on Indian exports, the RBI's decision to hold the repo rate at 5.5% appears measured and pragmatic.

Retail inflation fell to 2.1% in June 2025, its lowest in a year. While this gives the RBI room for future easing, policymakers are likely to wait for more durable trends before cutting rates further. The bond market reflects this caution, with the 10-year G-sec yield declining from 6.84% in January to around 6.3%—indicating muted expectations of major rate cuts ahead.

For interest-sensitive sectors like real estate, policy stability is key. Manju Yagnik, Vice Chairperson of Nahar Group and Senior VP of NAREDCO Maharashtra, said the RBI’s stance supports a balance between growth and inflation while preserving housing affordability—especially important as demand rises in the mid- and premium segments.

Dharmendra Raichura, VP and Head of Finance at Ashar Group, noted that holding the rate steady offers reassurance amid global trade headwinds. “It’s a growth-focused stance at a time of easing inflation and global volatility,” he said.

Sunny Bijlani, MD at Supreme Universal, added that consistent policy boosts market confidence. “Stable rates help buyers plan long-term investments, particularly in real estate.”

In summary, while the RBI remains on pause, the current environment of low inflation and steady rates offers an opportunity for borrowers and investors to act wisely—whether by refinancing, prepaying loans, or planning new purchases.