Home loan borrowers may soon experience a financial breather as experts predict that the Reserve Bank of India (RBI) could reduce its key policy rate, the repo rate, starting from its February 2025 monetary policy review. Analysts anticipate that the RBI might cut the repo rate by at least 25 basis points (bps) during its meeting in February, scheduled shortly after the Union Budget 2025-26 announcement.
A Year of Potential Rate Cuts
The RBI is set to hold six Monetary Policy Committee (MPC) meetings in 2025, in February, April, June, August, October, and December. Financial experts foresee a series of repo rate reductions in at least four of these meetings, totaling up to 100 basis points.
Such a move would bring substantial relief to borrowers, as banks typically lower their lending rates in response to repo rate cuts, making loans more affordable. Currently, the repo rate stands at 6.5%, unchanged since February 2023. The central bank maintained this level for the 11th consecutive time during its latest monetary policy review on December 6, 2024.
Market Perspectives on Rate Reductions
Forecasts from HSBC Research suggest that the RBI may implement two rate cuts of 25 bps each in February and April, bringing the repo rate to 6% early in the year. Meanwhile, Japanese investment bank Nomura projects a more aggressive approach, expecting a 100 bps reduction over the year.
EMI Relief for Borrowers
A repo rate cut of 100 bps could significantly impact home loan EMIs. For instance, a borrower with a home loan of ₹50 lakh at an interest rate of 9.25% over a 20-year tenure currently pays an EMI of ₹45,793. If 100 bps reduce the rate, the interest rate could drop to 8.25%, bringing the EMI down to ₹42,603—a monthly saving of ₹3,190.
What Borrowers Can Expect
While the exact trajectory of rate cuts will depend on macroeconomic conditions, reducing the repo rate would provide much-needed relief for loan borrowers, especially amid persistently high lending rates of up to 9.75%.
Borrowers are advised to monitor upcoming RBI announcements closely, as a shift in monetary policy could signal significant savings in their loan repayments. The February 2025 policy review could set the tone for a more borrower-friendly lending environment in the year ahead.
