Winning Bizness Economic Desk
Mumbai The Reserve Bank of India (RBI) has opened the door to further interest rate cuts if economic growth shows signs of weakening. RBI Governor Sanjay Malhotra stated that the central bank's neutral policy stance does not rule out additional rate reductions. This comes after the RBI reduced the repo rate by 0.5% in June, bringing it down to 5.50%. Since February, a total cut of 1% has already been made, aimed at supporting economic activity as demand falters across sectors.
Lower rates to ease loan EMIs
Repo rate is the interest rate at which RBI lends money to commercial banks. When this rate drops, banks get cheaper funds, which typically results in reduced loan interest rates for consumers. As a result, EMIs on home and auto loans are expected to fall by around 0.5%. For example, a 20-year loan of ₹20 lakh will see monthly EMIs reduce by ₹617, while a ₹30 lakh loan will see a ₹925 drop. Over the loan period, borrowers may save up to ₹1.48 lakh.
Inflation falls below RBI expectations
Retail inflation, which the RBI closely monitors, has eased significantly. The inflation rate for June dropped to 2.1%, far below the central bank’s earlier projection of 3.7% for 2025-26. April-June quarter inflation also came in at 2.7%, below the estimated 2.9%. American brokerage Citi projects retail inflation could touch a record low of 1.1% in July, pushing the yearly average for 2025-26 down to 3.2%—the lowest since the 1990s.
Sectors show signs of stress
Several economic indicators suggest demand is weakening. June saw car sales fall to an 18-month low. In the real estate sector, home sales in India’s top seven cities declined 20% during April-June. The export of gems and jewellery dropped by 14.25% in June, while diamond imports fell over 7%. Economists believe lower interest rates could help reverse this downturn by boosting consumer and investor confidence.
Liquidity boost through CRR cut
Apart from rate cuts, the RBI has also lowered the Cash Reserve Ratio (CRR) from 4% to 3%. This 1% reduction will release ₹2.5 lakh crore into the financial system, increasing the lending capacity of banks. CRR is the portion of deposits banks must maintain with RBI. A lower CRR means more funds in the market, further supporting credit growth and potentially reviving sectors like real estate and auto.
7 Key Pointers:
- RBI may cut interest rates further if GDP data shows slowdown
- Repo rate already reduced by 1% this year, now at 5.50%
- EMIs likely to fall further, easing pressure on borrowers
- June retail inflation dropped to 2.1%, well below estimates
- Auto sales, housing demand, and jewellery exports show signs of weakness
- CRR cut by 1% to infuse ₹2.5 lakh crore into the system
- Lower rates and more liquidity expected to support economic recovery
