The reserve bank of India (RBI) had the unenviable task of setting the policy direction for the Indian economy on the day US President Donald Trump’s “reciprocal” tariffs came into force on April 9. With the world engulfed in a haze of uncertainty about the potential repercussions of the decision, the Indian central bank chose to cut the repo rate by 25 basis points (bps) to 6% and shift its stance to ‘accommodative’ to indicate support for liquidity and future growth.
It was the second policy address by Sanjay Malhotra since taking over as RBI Governor in December. This is the second consecutive rate cut after the 25 bps reduction in February.
The RBI has noted that though there is a risk of imported inflation because of the tariffs, the potential impact on growth is more pressing. It has reduced its projection of GDP growth rate for FY26 by 20 bps to 6.5% from 6.7% earlier. The rate cut is likely to boost demand for home, auto, and personal loans—especially in smaller cities and towns.
Binod Kumar, MD & CEO of Indian Bank, says the policy decisions will support both MSME and retail demand. “The MSME sector, which contributes nearly 30% to India’s GDP and accounts for over 40% exports, will benefit from this move as it will ease credit costs and improve cash flows,” he adds.
The measures will also provide relief to retail borrowers. “Home loan rates are about to go [below 8%] again with today’s cut. The lowest rates we’re currently seeing are between 8.10% and 8.35%,” says Adhil Shetty, CEO of banking services portal BankBazaar.
What should home loan borrowers do? Homeowners currently servicing loans at significantly higher (by 50 bps or more) rates than prevailing in the market should consider refinancing to take advantage of lower rates.
The automatic, immediate and full rate cuts are available only on repo-linked home loans offered by banks. Those whose loans are linked to MCLR should “take stock of their older loan benchmark and consider a refinance to a repo-linked home loan if it helps them save interest outflows,” Shetty adds.
Will there be more rate cuts? With a benign inflation outlook—expected to stay below 4% through FY26—the RBI Governor has said, “absent any shocks, the MPC is considering only two options—status quo or a rate cut”.
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