What if RBI cuts repo rate? How much your EMI can fall

The Reserve Bank of India (RBI) is widely expected to keep the policy repo rate unchanged at 5.25 per cent in the upcoming Monetary Policy Committee (MPC) meeting, according to multiple reports.

However, if the central bank opts for a rate cut in the future, it could bring relief to borrowers by lowering equated monthly instalments (EMIs) on loans.

How repo rate impacts borrowers

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The repo rate is the rate at which the RBI lends to commercial banks. Any change in this rate directly impacts lending rates of banks, especially loans linked to external benchmarks such as the repo rate.

A reduction in repo rate typically leads to lower interest rates on home loans, auto loans and other floating rate borrowings. This, in turn, reduces the EMI burden for borrowers or shortens the loan tenure, depending on the borrower’s choice.

EMI impact: A simple example

For instance, if a borrower has a home loan of Rs 50 lakh with a tenure of 20 years at an interest rate of 8.5 per cent, the EMI is around Rs 43,400. If the RBI cuts the repo rate by 25 basis points and banks pass on the full benefit, the interest rate could fall to 8.25 per cent. In such a scenario, the EMI may decline by around Rs 800 to Rs 1,000 per month.

For larger loans or longer tenures, the savings could be higher. Over the full loan tenure, even a small reduction in interest rates can result in significant savings in total interest outgo.

Transmission and global risks

However, the extent of EMI reduction depends on how quickly and fully banks transmit the rate cut to customers. While repo-linked loans see faster transmission, older loans linked to marginal cost of funds-based lending rate (MCLR) may take longer to reflect the change.

Reports by Bank of Baroda, PhillipCapital and SBI Research indicate that the RBI is likely to maintain a pause due to rising global uncertainty, especially after the West Asia conflict pushed crude oil prices above USD 100 per barrel and increased inflation risks.

According to the reports, elevated oil prices, pressure on the Indian rupee and volatile capital flows have created upside risks to inflation and downside risks to growth. Inflation projections, currently estimated at around 4.1 per cent for the first half of FY27, may also be revised upwards.

SBI Research noted that imported inflation has already risen to around 5.4 per cent and could increase further if crude prices remain elevated. It added that CPI inflation may stay above 4.5 per cent for the next three quarters.

RBI stance and policy timeline

Given these conditions, the RBI is expected to remain cautious and prioritise inflation control over growth support. A rate cut in the near term appears unlikely, with reports suggesting that the central bank may instead opt for a prolonged pause.

However, if inflation moderates in the coming months and global conditions stabilise, the RBI may consider easing policy rates. In such a scenario, borrowers could benefit from lower EMIs and improved affordability of loans.

The RBI’s MPC meeting is scheduled for April 6 to 8, with the policy decision to be announced by Governor Sanjay Malhotra at 10 AM on April 8.