The Reserve Bank of India (RBI) has finally pulled the trigger towards the end of 2025. In a decisive move this December 2025, the RBI cut the repo rate by 25 basis points (bps). This brings the benchmark lending rate down to 5.25%. It is a clear signal that the focus has shifted from inflation control to fuelling economic growth.
For borrowers, this is the holiday gift we have been waiting for. But for savers, the clock is ticking on high-yield deposits. How? read on to find out exactly what this RBI repo rate cut means for your wallet.
RBI’s 25 bps Repo Rate Cut
The Monetary Policy Committee (MPC) shifted the economic narrative by reducing the repo rate further down by 25 bps. This update of lowering the repo rate to 5.25% from the previous 5.50% (August 2025) lowers banks’ borrowing costs and is intended to support credit transmission under prevailing economic conditions.
This decision stems from a comfortable inflation trajectory and a need to support the upgraded GDP outlook. The central bank is essentially making money cheaper for commercial banks.
The goal is simple: encourage spending and investment.
However, the transmission lag is where the real story lies. While the RBI cuts the repo rate by 25 bps, banks often delay passing this benefit to existing borrowers.
Key Policy Rates at a Glance:
| Policy Rate | Previous Rate | New Rate | Change | Impact |
| Repo Rate | 5.50% | 5.25% | -25 bps | Cheaper cost of funds for banks. |
| Reverse Repo | 3.35% | 3.35% | Unchanged | No change in parking excess funds. |
| MSF Rate | 5.75% | 5.50% | -25 bps | Lower penalty for emergency borrowing. |
| Standing Deposit Facility | 5.25% | 5.00% | -25 bps | Floor for liquidity absorption lowered. |
Watch the Standing Deposit Facility (SDF) rate closely. The drop to 5.00% reduces the incentive for banks to park money with the RBI. This forces them to lend to you instead, theoretically increasing credit supply more than the repo cut alone would suggest.
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Immediate Impact of Repo Rate Cut on Home Loan EMIs
If you are on an External Benchmark Linked Rate (EBLR) regime, this news is gold. EBLR loans are contractually bound to reset quickly.
Most banks reset these rates within a calendar quarter. Since the RBI repo rate now stands at 5.25%, your interest obligation should drop by the same margin.
However, borrowers on the Marginal Cost of Funds Based Lending Rate (MCLR) face a harder path. MCLR resets are typically annual. You might not see this benefit until your next reset date in 2026.
EMI Savings Calculation (₹50 Lakh Loan, 20 Years)
| Scenario | Interest Rate | Monthly EMI | Total Interest Payable |
| Before Cut | 8.50% | ₹43,391 | ₹54,13,879 |
| After Cut | 8.25% | ₹42,603 | ₹52,24,787 |
| Net Savings | -0.25% | ₹788 / month | ₹1,89,092 |
Tip: Don’t just enjoy the lower EMI. Ask your bank to keep the EMI constant and reduce the tenure instead. In the example above, keeping the EMI at ₹43,391 would shave off roughly 10 months from your loan tenure.
Also Read: Impact of Repo Rate on Personal Loan
Why the Repo Rate Cut May Not Affect Every Loan
You see, while this repo rate cut is certainly good news for the borrowers, there is a silver lining. Not every loan will see a reduced interest rate:
- Fixed Contracts: Personal and auto loans are typically fixed-rate agreements. You are locked into the rate you signed up for until the tenure ends.
- Risk Pricing: Banks price unsecured loans based on default risk, not just the cost of funds. The risk premium here is massive compared to the 25 bps cut.
- Demand Dynamics: Demand for consumption credit is at an all-time high. Lenders have zero incentive to cut rates when borrowers are willing to pay current prices.
Here is a quick overview of which types of loans are susceptible to these changes:
| Loan Type | Interest Regime | Sensitivity to Cut | Expected Change |
| Home Loan (EBLR) | Floating | High | Immediate -25 bps drop. |
| Home Loan (MCLR) | Floating | Low | Delayed by 6-12 months. |
| Auto Loan | Fixed | None | No change for existing loans. |
| Personal Loan | Fixed | None | No change; new loans might stay pricey. |
| Credit Cards | Fixed / Revolving | Zero | Rates remain sticky at 36-42%. |
PNB & Bank of Maharashtra’s Immediate Repo Rate Cut
The transmission of this repo rate cut has been surprisingly swift this cycle. Usually, we see a lag of weeks. This time, public sector banks are moving aggressively to capture market share.
Punjab National Bank (PNB) was among the first to react. They lowered their repo-linked lending rates by the full 25 bps immediately following the announcement. This directly benefits retail consumers in the housing and auto segments.
Similarly, the Bank of Maharashtra has cut retail loan rates by 25 bps. This competitive pressure will force private lenders to follow suit quickly or risk losing balance sheet growth.
Bank Reaction Tracker (Dec 2025)
| Bank Name | Action Taken | Effective Date | Target Segment |
| Punjab National Bank | Cut RLLR by 25 bps | Immediate | Home, Auto, Personal Loans |
| Bank of Maharashtra | Cut Retail Rates by 25 bps | Immediate | Retail & MSME Borrowers |
| SBI (Expected) | Pending Announcement | Likely Jan 1 | EBLR Linked Loans |
| HDFC Bank (Expected) | Pending Announcement | Likely Jan 1 | Housing Portfolio |
What does that mean in interest rate terms?
Well, for PNB, the interest rates on RLLR have been changed from 8.35% to 8.10%, while for Bank of Maharashtra, their home loan rates now start at 7.10%, and car loans begin at 7.45%.
| Market Watch: When smaller PSUs like Bank of Maharashtra lead the cuts, it signals high liquidity in the banking system. They are desperate to deploy capital. Use this leverage to negotiate processing fee waivers if you are applying for a new loan today. |
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Bad News for Savers: FD Rate Fall After RBI Repo Rate Cut
You see, there is always a flip side to a repo rate cut in 2025. As loan rates fall, deposit rates inevitably follow.
Banks now have access to cheaper funds from the RBI at 5.25%. They have less incentive to pay you 7.5% or 8% on your Fixed Deposits.
If you have been sitting on surplus cash, the window to lock in high rates is closing fast. We expect FD rates to correct by 15-20 bps over the next 45 days.
Action Plan for Savers
- Lock-in Now: If you find an FD offering >7.5% for 3 years, book it immediately.
- Check Small Finance Banks: They often lag in cutting rates compared to major commercial banks.
- Laddering Strategy: Don’t dump all cash in one tenure. Split it across 1-year, 2-year, and 3-year buckets to manage reinvestment risk.
- Contrarian View: Real interest rates (Interest Rate minus Inflation) are still positive. Even if nominal rates drop, falling inflation means your purchasing power is still protected. Don’t panic-sell your debt mutual funds yet; they might see capital appreciation as yields fall.
Also Read: Repo Rate Cut Impact on Home Loans
Strategic Moves for Borrowers in 2026
The RBI repo rate cut in December 2025 is likely just the beginning of a softening cycle. The upgraded GDP outlook suggests the RBI wants to fuel a capex boom. For borrowers, this environment requires a tactical approach. Staying passive is costing you money.
If your current interest rate is more than 50 bps higher than the new market offers, refinance. The cost of switching is often recovered within 6 months of interest savings.
If you are looking for a new loan, use an EMI calculator to know your payment schemes and be on top of your terms.
Checklist: Should You Refinance?
| Factor | Condition | Action |
| Current Rate | > 8.75% | Switch Immediately |
| Loan Type | Fixed Rate | Move to Floating (Repo Linked) |
| Remaining Tenure | < 5 Years | Stay Put (Cost > Benefit) |
| Credit Score | > 750 | Negotiate Spread Reduction |
Hidden Detail: Many borrowers forget the ‘spread’. The banks interest rate after repo cut is Repo Rate + Spread. While the repo dropped, the bank might increase the spread for new borrowers to protect margins. Check your loan agreement to ensure your Spread is constant.
If you want a quick way to compare loan terms before taking a loan, use a digital aggregator like Buddy Loan to find the best lenders suited for your profile.
Summary & Key Insights
The RBI cuts repo rate decision marks a pivotal shift in India’s monetary stance. With the RBI repo rate now at 5.25%, the era of expensive money is fading.
This move is a direct stimulus for the housing and infrastructure sectors. For the common man, it brings relief to monthly budgets but demands agility in managing savings.
Key Takeaways:
| Category | Impact Summary | Actionable Advice |
| Borrowers | EMIs will fall for EBLR loans. | Check if your bank has passed the 25 bps cut. If not, raise a grievance. |
| Savers | FD rates will drop soon. | Lock in current high rates before Jan 2026. |
| Investors | Bond prices will rise. | Debt mutual funds with longer duration will benefit. |
| Economy | Liquidity boost confirmed. | Expect easier credit access for small businesses. |
Review your loan portfolio today. The difference between 5.50% and 5.25% might look small on paper, but over a 20-year tenure, it could be the price of a brand-new car. Don’t leave that money on the table.
For borrowers, if you are looking for a fresh loan, use platforms like Buddy Loan to compare and find out the best lender.
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