RBI cuts repo rate to 5.25%, but banks fail to pass on benefits

Central bank lowers rates to boost growth, but borrowers continue to bear high lending costs.

In a bid to strengthen economic growth, the Reserve Bank of India on Thursday reduced the repo rate from 5.5% to 5.25%. Governor Sanjay Malhotra announced the 25 basis-point cut after the Monetary Policy Committee concluded its three-day bi-monthly meeting, where all members voted unanimously in favour of the decision.

The central bank has lowered the repo rate by 125 basis points since the beginning of 2025, including a 100 bps reduction across earlier bi-monthly meetings. However, despite these significant cuts, commercial and public sector banks have not reduced lending rates on home, auto or personal loans.

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The repo rate represents the interest charged by RBI when lending to commercial banks. With the rate now at 5.25%, banks are receiving funds at a cheaper cost. In principle, this benefit must be transferred to customers through lower EMIs. But banks have not implemented corresponding reductions, leaving borrowers with no relief.

Economists note that if home loan rates fall, the housing sector gains momentum, boosting demand for steel, cement and labour, thereby strengthening overall economic activity. But the lack of transmission means households and the broader economy are not benefiting from RBI’s aggressive policy stance.

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The RBI also addressed concerns around the recent decline in the value of the Indian rupee, stating that the currency remains stable and that inflation pressures continue to soften. Retail inflation is expected to ease further, with the central bank projecting a 2% decline in CPI inflation during FY 2025–26, compared to earlier estimates.

Despite multiple assurances, both RBI and the Union Finance Ministry now face pressure to ensure banks pass on the benefits of lower rates to the public. Without this, analysts warn, the purpose of repo rate cuts will remain largely unfulfilled.