RBI Cuts Repo Rate to 5.25%: Home Loan EMIs Set to Ease, But Savings May Shrink
Borrowers to Benefit as Banks Lower Lending Rates After 125 bps Cut in 2025
Rate Reduction Brings Relief for Homebuyers, But Fixed Deposit Returns Likely to Fall
By Our Business Reporter
New Delhi: December 05, 2025:
The Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points (bps) to 5.25% in its December 2025 Monetary Policy Committee (MPC) meeting. This marks the fourth rate cut of the year, with a total reduction of 125 bps in 2025. For millions of home loan borrowers, this decision promises relief in the form of lower EMIs, while savers may face reduced returns on fixed deposits and small savings schemes.
What is Repo Rate and Why It Matters
The repo rate is the interest rate at which RBI lends money to commercial banks. When RBI cuts this rate:
- Borrowers benefit: Banks can borrow at cheaper rates, which allows them to lower lending rates for home, car, and personal loans.
- Savers lose: Lower repo rates often lead to reduced interest rates on fixed deposits and savings accounts.
- Economy grows: Cheaper loans encourage spending and investment, boosting economic activity.
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Thus, repo rate changes directly affect household budgets, influencing both monthly EMIs and returns on savings.
Impact on Home Loan EMIs
- A ₹50 lakh home loan over 20 years could see EMIs fall by ₹3,000–₹4,000 per month after this cut.
- Cumulatively, borrowers may save up to ₹9 lakh in EMIs over the loan tenure due to the 125-bps reduction in 2025.
- Banks like SBI, HDFC Bank, ICICI Bank, and Bank of Baroda are expected to adjust lending rates soon, with current home loan rates ranging between 7.3%–7.9%.
However, the speed of relief depends on whether banks pass on the benefit immediately or delay adjustments.
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Effect on Depositors and Savers
While borrowers celebrate, depositors face a downside:
- Fixed deposit rates are likely to fall, reducing returns for senior citizens and small savers.
- Small savings schemes may also see lower interest rates.
- Savers must explore alternatives like mutual funds, bonds, or equities to maintain returns.
Why RBI Cut Rates
The MPC’s decision was based on:
- Inflation trends: Consumer inflation has remained within RBI’s target range.
- Growth needs: India’s GDP growth is strong, but rate cuts aim to sustain momentum.
- Liquidity management: Lower repo rates ensure banks have cheaper funds to lend.
RBI Governor Sanjay Malhotra emphasized that the committee unanimously agreed on the cut to balance growth and inflation.
Broader Economic Impact
- Real estate boost: Lower EMIs may encourage more homebuyers, supporting the housing market.
- Consumer spending: Cheaper loans for cars, education, and personal needs can drive demand.
- Corporate borrowing: Businesses benefit from lower interest costs, aiding expansion.
- Stock markets: Rate cuts often lift investor sentiment, though reduced deposit returns may push savers toward equities.
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Expert Opinions
- Economists: “The 25-bps cut aligns with global trends of easing monetary policy to support growth.”
- Bankers: “We expect lending rates to fall, but deposit rates will also decline.”
- Homebuyers: “This is welcome relief. Lower EMIs make housing more affordable.”
Conclusion
The RBI’s repo rate cut to 5.25% is a double-edged sword: it brings relief to borrowers through lower EMIs but reduces returns for savers. For homebuyers, the timing is ideal, as cumulative cuts in 2025 could save lakhs over the loan tenure. For depositors, however, it signals the need to rethink investment strategies.
As India’s economy continues to grow, the repo rate cut reflects RBI’s balancing act—stimulating demand while keeping inflation under control.
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