RBI Reduces Repo Rate to 6% for the Second Time: Here’s What It Signifies

The Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points, lowering it from 6.25% to 6%. This move is expected to make borrowing cheaper for individuals and businesses. RBI Governor Sanjay Malhotra announced the decision during the first Monetary Policy Committee (MPC) meeting of FY26, held from April 7 to 9. This marks the second consecutive rate cut following a similar reduction in February.

What Is The Repo Rate?

The repo rate is the interest rate at which the RBI lends money to commercial banks for short-term needs, typically against government securities. It is a key tool used by the central bank to manage inflation and liquidity in the economy.

Why Did The RBI Cut The Repo Rate?

The RBI reduces the repo rate when it aims to increase liquidity in the financial system and stimulate economic activity, especially when inflation is under control. For FY26, the RBI has projected Consumer Price Index (CPI) inflation at 4%, which is comfortably within its target range of 2-6%. Additionally, global uncertainties, such as trade tensions fueled by US President Donald Trump’s reciprocal tariffs, have influenced this decision as they pose risks to global growth and India’s exports.

How Will It Affect You?

• Loan EMIs May Get Cheaper – With the repo rate cut, banks and financial institutions can borrow funds from the RBI at a lower cost. This could lead to reduced interest rates on home loans, auto loans, and new personal loans. However, the actual reduction in EMIs depends on how quickly and to what extent individual banks pass on the benefits to consumers.
• Impact On Fixed Deposits – While borrowers may benefit, fixed deposit (FD) investors could see a downside. As lending rates decrease, banks may also reduce interest rates on deposits to protect their margins. New FD investors might earn lower returns than those who locked in earlier at higher rates. If you are planning to invest in FDs, it might be wise to act before banks revise rates downward.
• Personal Loan Borrowers – If you already have a personal loan, especially one with a fixed interest rate, your EMI will likely remain unchanged. However, if you are planning to take a new personal loan, the rate cut could mean lower interest rates and more affordable repayments.

Governor Sanjay Malhotra stated that the Indian economy is on track, projecting GDP growth at 6.5% for FY 2025-26. Here is the quarterly breakdown:

• Q1: 6.5%
• Q2: 6.7%
• Q3: 6.6%
• Q4: 6.3%

He also noted that the agriculture sector looks promising due to healthy reservoir levels and robust crop production. The manufacturing and services sectors are showing signs of revival, and urban consumption is gradually picking up. Investment activity is increasing, supported by strong corporate and bank balance sheets and continued government focus on infrastructure.