In a move aimed at boosting economic growth, the Reserve Bank of India (RBI) has reduced the repo rate by 50 basis points (bps) to 5.50%, down from 6%. The decision, announced on June 6, 2025, during the RBI’s Monetary Policy Committee (MPC) meeting, is expected to have widespread implications for the economy, particularly in the areas of borrowing, investment, and housing. The RBI also cut the Cash Reserve Ratio (CRR) by 100 bps, which is expected to release up to ₹2.5 lakh crore of liquidity into the banking system, further facilitating credit flow.

Impact on Borrowers, Particularly Homebuyers

The reduction in the repo rate is expected to benefit borrowers, especially those seeking home loans. Since the repo rate is the benchmark at which the RBI lends to commercial banks, a decrease in the rate makes it cheaper for banks to borrow from the central bank. In turn, these savings are often passed on to consumers in the form of lower interest rates on loans.

For homebuyers, the impact will be significant. A 50-basis point cut in the repo rate could translate into reduced equated monthly installments (EMIs) for existing and new home loan borrowers. This will make homeownership more affordable, particularly for first-time buyers who have been holding off on purchasing due to high loan costs. With the cost of borrowing now lower, it is expected that demand for housing will pick up, especially in the affordable and mid-range segments.

Additionally, the reduced interest rates are likely to prompt those with existing loans to consider refinancing, further easing the financial strain on homeowners. Real estate developers, too, will benefit as the easier availability of credit may lead to an uptick in construction activities, helping to meet the growing demand for housing.

Savers May Face Lower Returns

While the RBI’s move is seen as positive for borrowers, it is likely to have a less favorable impact on savers, especially those relying on fixed deposits and savings accounts for their returns. A reduction in the repo rate often leads to a corresponding decrease in the interest rates offered on bank deposits. As a result, depositors may see lower returns on their savings in the coming months.

This shift in interest rates could push savers to explore alternative investment avenues such as equities, mutual funds, or government securities, which may offer higher returns but come with greater risk. For conservative investors who depend on fixed income from deposits, the lower rates could result in a tightening of their disposable income.

A Boost for Economic Growth and Investment

The RBI’s rate cut is also aimed at stimulating borrowing and investment, both of which are crucial for economic growth. By lowering the cost of credit, the central bank hopes to encourage businesses to invest in expansion and infrastructure projects. With easier access to capital, companies may ramp up production, leading to higher employment and overall economic activity.

The policy panel has maintained its growth forecast at 6.5% for the current fiscal year, while also projecting a lower inflation rate of 3.7%. This outlook suggests that the RBI is confident that the lower interest rates will drive economic activity without leading to excessive inflation, thus creating a favorable environment for sustained growth.

The Housing Sector Set to Benefit

The housing sector is expected to be one of the biggest beneficiaries of the repo rate cut. With home loan interest rates likely to decrease, more buyers are expected to enter the market, leading to a revival in real estate demand. The increased availability of affordable housing loans could boost home sales, particularly in urban areas where property prices have remained high.

Moreover, developers will find it easier to finance new projects, potentially increasing the supply of housing, particularly in the affordable segment. This will align with the government’s goal of promoting affordable housing for all, helping more individuals to achieve homeownership.