In a significant move, the Reserve Bank of India (RBI) Governor, Sanjay Malhotra, on Friday announced a repo rate cut of 25 basis points to 6.25%. This marks the first rate revision in nearly five years, with the last cut dating back to May 2020. During the announcement, Malhotra emphasised that while the Indian economy remains strong, it isn't immune to global challenges. He stressed the importance of stakeholder consultations and their commitment to strengthening the prudential framework. Notably, he pointed out that average inflation has remained lower since the introduction of the monetary policy framework. Impact on Home Loans The repo rate influences various loan rates, particularly home loans. When the RBI reduces the repo rate, banks typically follow suit by lowering their lending rates, making loans more affordable. This affects both fixed and floating interest rate loans, though floating rate borrowers see the benefits either immediately or at their next reset period. What Borrowers Should Know Since April 2019, banks have been required to link their home loan interest rates to the External Benchmark Lending Rate (EBLR). This linkage means that floating rate loans respond more directly to changes in monetary policy. The system benefits both existing and new borrowers, particularly when rates decrease. Action Points for Borrowers Important Considerations Looking Forward Monitor loan terms as rates change. Rate knowledge helps homeowners and buyers make better decisions. While fixed rates stay stable, cuts benefit the overall real estate market. Commenting on the decision, Deepak Agrawal, CIO, Debt, Kotak Mahindra AMC, says, “Rate cut along with assurance on liquidity should help in boosting the consumption and revive growth. Inflation target has been pegged at 4.2% and GDP Growth is pegged at 6.7% for FY2025-26. “As policy was on expected line and no immediate measure on liquidity front, the10 years G-sec has reacted by moving 4-5 bps higher post the policy announcement. We continue to expect incremental 25 bps rate cut till June 2025.”Original Article