RBI Slashes Repo Rate For Third Time In A Row: Here’s What It Means For Your Money

This marks the third reduction in the current cycle, following two earlier cuts of 25 basis points each, making a total reduction of 100 basis points this year.

After the last two rate cuts, lending rates have eased, giving a much-needed boost to the real estate market by making home loans more affordable.

Source : ABPLIVE AI

Continuing with the easing cycle, the Reserve Bank of India’s Monetary Policy Committee has cut the repo rate by 50 basis points to 5.5 per cent. This marks the third reduction in the current cycle, following two earlier cuts of 25 basis points each, making a total reduction of 100 basis points this year. With this move, the RBI signals a clear intent to support growth, given that inflation remains within comfortable limits.

For investors, this is a crucial time to stay informed, track policy updates, and review long-term financial plans carefully. If you have a home loan or fixed deposit, here’s what you should consider:

Lending Rates

After the last two rate cuts, lending rates have eased, giving a much-needed boost to the real estate market by making home loans more affordable. Rates have now dropped below 8 per cent—the lowest since 2022. This presents a good opportunity to revisit your home loan. If you're already repaying one, the lower rates could help you save significantly and close your loan faster.

If you're planning to buy your first home, this may be the right time. Lower rates can enhance your loan eligibility, making it easier to afford a better or larger home with a more manageable EMI.

If rates are expected to drop further, it may be worth choosing a floating-rate loan now rather than locking into a fixed-rate loan. Floating rates will fall in tandem with benchmark cuts, translating to lower EMIs over time. This is especially beneficial if you’re early in your loan tenure.

If you're already servicing a home loan, falling rates can work to your advantage in two ways. First, check your loan’s reset clause. Most floating-rate loans reset every 3 to 12 months, so your EMI or loan tenure may reduce in the next cycle.

Second, if you're still in the first half of your tenure, consider refinancing to a lower rate. That’s when most of your EMI goes towards interest, so a rate cut can translate into substantial savings. You could also prepay small amounts during this period as more of it will go towards the principal, helping you close the loan faster.

For instance, if you have a home loan of Rs 50 lakh with a tenure of 20 years at 8 per cent interest, your EMI would be Rs 41,822. A 50 bps cut would bring your loan rate down to 7.5 per cent and the EMI to Rs 40,279. Your EMI and total interest savings would be Rs 1,542 and Rs 3.7 lakh, respectively.

Fixed Deposits

As the RBI’s Monetary Policy Committee announced a 50 basis point cut in the repo rate, it may mark a turn in the prevailing interest rate cycle—and influence how savers and investors approach fixed deposits (FDs).

Coming to deposits, FD rates tend to move in line with the repo rate, which determines the cost of funds for banks. A 50 bps cut could prompt banks to begin trimming FD rates, particularly for short- and medium-term tenures. While one rate cut may not dramatically reduce returns overnight, it often signals the beginning of a downward trend. If you’ve been waiting to lock in your funds, this could be a good time.

Currently, several leading banks and NBFCs are offering rates of up to 7.5 per cent on select tenures. Senior citizens typically enjoy an additional 0.25 per cent to 0.50 per cent above these rates. However, such yields may not persist if the rate-cut cycle continues.

A smart way to navigate a falling rate environment is FD laddering that involves splitting your investment across different maturities. This helps you secure higher rates on part of your corpus while maintaining some liquidity. You may also consider tax-saving FDs, which offer fixed returns and qualify for deductions under Section 80C under the old tax regime.

For conservative investors or those nearing retirement, FDs remain a stable choice. But returns shouldn’t be the sole criterion. Always compare rates across banks–including small finance banks and well-rated NBFCs–where offers may be higher. Stick to institutions with a minimum credit rating of ‘A’ or above to manage risk effectively.

Mutual Fund Investors

With inflation now under control and liquidity set to improve further due to the phased CRR cut, bond yields may soften. This move could be positive for debt mutual funds, particularly long-duration and gilt funds, as falling interest rates tend to push up bond prices, boosting returns.

At the same time, the shift to a ‘neutral’ stance and the cumulative 100 bps cut since February reflect the central bank’s commitment to supporting growth. This could reinvigorate business activity and consumer sentiment, creating a more favourable environment for equity markets over the medium term. Equity mutual funds, especially those focused on rate-sensitive sectors like banking, auto, and real estate, may benefit from the improved outlook.

For investors, this is a good opportunity to rebalance portfolios in line with the evolving interest rate cycle. While equity markets may remain volatile in the short term, the overall policy direction supports a constructive view on both debt and equity mutual funds in the coming quarters.

With rates headed lower, it’s the right moment to revisit your loan EMIs, secure attractive FD returns, and fine-tune your mutual fund allocations.

(The author is the CEO at BankBazaar.com. This article has been published as part of a special arrangement with BankBazaar)