RBI Delivers Cheaper Loans: Repo Rate Slashed as GDP Outlook Brightens
In a significant move that promises relief to millions of borrowers across the country, including those in Odisha, the Reserve Bank of India (RBI) has announced a reduction in the benchmark interest rate. The Monetary Policy Committee (MPC), led by RBI Governor Sanjay Malhotra, concluded its meeting on Friday by cutting the repo rate by 25 basis points, bringing it down to 5.25 per cent.
This decision creates a direct pathway for commercial banks to lower interest rates on various credit products. For the common man, this is the news they have been waiting for: interest rates on home loans, personal loans, and credit for small businesses are expected to fall, resulting in lower monthly EMIs.
Economy on a High Growth Trajectory
The central bank’s decision was largely influenced by the Indian economy’s stellar performance. Citing robust economic indicators, the MPC has revised the GDP growth forecast for the fiscal year 2026 upwards by 50 basis points, setting a new target of 7.3 per cent.
This optimism stems from recent data showing that the GDP expanded by an impressive 8.2 per cent during the July-September 2025 quarter. This is a sharp jump from the 5.6 per cent growth recorded during the same period in the previous year. The first half of the current fiscal year has already clocked an 8 per cent growth rate, signaling that the engine of the Indian economy is running at full steam.
Inflation Under Control
Another major factor allowing the RBI to cut rates is the cooling of inflation. The central bank has trimmed its consumer price index (CPI) inflation projection significantly, dropping it to 2 per cent from the earlier estimate of 2.6 per cent.
Governor Sanjay Malhotra highlighted that the decline in inflation is becoming more generalized. He pointed to improved food supply, driven by healthy Kharif production and favorable Rabi sowing conditions—news that resonates well with the agricultural communities in states like Odisha. Additionally, the rationalization of GST rates and stable crude oil prices have helped keep price pressures in check.
Impact on Your Wallet
The immediate effect of the RBI Repo Rate Cut will be visible in the lending market. Borrowers whose loans are linked to the external benchmark lending rate (EBLR) will see a quick reduction in their interest burdens. However, there is a flip side to this coin. As lending rates fall, banks are also likely to reduce interest rates on fixed deposits and savings accounts, which may impact pensioners and savers who rely on interest income.
The Rupee Challenge
The rate cut comes at a tricky time for the Indian currency. The rupee recently dipped to an all-time low of 90.43 against the US dollar. Typically, a central bank might hesitate to cut rates when the currency is weak to prevent capital outflows. However, the RBI has prioritized supporting domestic growth, banking on the internal strength of the economy despite the pressure on the rupee caused by foreign investors booking profits and uncertainty regarding trade deals with the US.
Neutral Stance Maintained
Despite the aggressive move on rates and the bullish view on GDP, the MPC has decided to retain a 'neutral' policy stance. This indicates that the RBI is keeping its options open, ready to adjust rates in either direction depending on how the economic data evolves in the coming months.
