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In a widely anticipated decision, the Reserve Bank of India (RBI) on Friday confirmed a 50 basis point reduction in the key policy rate. Following the Monetary Policy Committee’s (MPC) latest review, the repo rate has been brought down from 6 per cent to 5.5 per cent, as announced by RBI Governor Sanjay Malhotra. The move, passed with a 5:1 majority, marks the third straight rate cut, along with a change in the monetary policy stance from 'accommodative' to 'neutral'.

In addition to the repo rate change, the RBI also revised other key lending and deposit tools. The standing deposit facility (SDF) rate has been adjusted to 5.25 per cent, while the marginal standing facility (MSF) now stands at 5.75 per cent. These instruments play a critical role in managing the banking system’s liquidity and inflation levels.

SDF, MSF, CRR: Key Rates And Why They Matter

The RBI uses the SDF to mop up excess liquidity by offering commercial banks interest on surplus funds they park with the central bank. This measure helps temper inflationary pressures. On the other hand, the MSF acts as an emergency funding option for banks facing short-term liquidity shortages, with the rate serving as a ceiling for overnight borrowings.

Governor Malhotra also announced that the Cash Reserve Ratio (CRR) would be cut by 100 basis points over four tranches, scheduled between September and November 2025. This step is designed to inject additional liquidity into the banking system and facilitate smoother credit flows.

How Will Repo Rate Impact Your EMIs?

Lower interest rates are expected to bring relief to home loan borrowers and provide a boost to the housing sector. Industry expert Samir Jasuja, Founder and CEO of PropEquity, welcomed the RBI’s decision. Describing it as a “bold, timely, and progressive” move, Jasuja said it aligns with India’s ongoing economic expansion. “With retail inflation in the comfort zone, a deep cut in rate and liquidity measure will spur consumption and accelerate India’s growth. Both these measures will ensure faster transmission of rate cut so that the new homebuyers are cushioned from the impact of rising housing prices and the affordable housing segment also gets a fillip as even a slight reduction in home loan rates impacts buying decisions,” he explained.

According to Adhil Shetty, CEO of BankBazaar.com, the recent rate cut could bring home loan interest rates closer to the psychologically important sub-8 per cent mark. “The lowest rates in the market are already at 7.85 per cent, largely available to prime borrowers with credit scores above 750, and often in refinance or balance transfer cases. A further rate cut could see sub-8 per cent rates becoming more widespread—something we haven’t seen since early 2022,” he added.

Homebuyers To Gain, But Benefits May Vary

However, the extent to which borrowers benefit depends on the nature of their loan agreements. Shetty, pointed out that the pass-through of policy rate cuts is not uniform across all borrowers. “Borrowers with repo-linked home loans will see the fastest and fullest pass-through. But loans taken pre-2019, especially with public sector banks, continue to be linked to older benchmarks like the MCLR or even the Base Rate. These borrowers will not benefit automatically from today’s cut,” he said.

He also advised borrowers still repaying older loans to explore switching to repo-linked options, particularly if they are in the early years of their loan term. Doing so could reduce the total interest paid over the loan’s lifetime.

What Is In Store For Depositors?

As for depositors, Shetty cautioned that the move might trigger a downward trend in fixed deposit (FD) rates, even if the change isn’t immediate. “Banks are likely to start trimming deposit rates, especially for short- and medium-term tenures. If you’ve been waiting to lock in current rates, some of which still hover around 7.5 per cent, now may be the time. Senior citizens, who enjoy an extra 25 to 50 basis points, should consider locking in longer tenures,” he suggested.