RBI cuts repo rate to 5.25 percent can lower EMIs spark higher growth now

RBI’s Monetary Policy Committee has reduced the repo rate by 25 basis points to 5.25 per cent and kept the stance neutral, so it is signalling support for growth without committing to a long easing cycle. The SDF rate now stands at 5 per cent and the MSF and Bank Rate at 5.5 per cent, which together pull down the overall interest rate corridor. This move comes when CPI inflation has fallen to about 0.25 per cent, helped by softer food prices and tax cuts on several consumer goods, while GDP growth in Q2 FY26 has accelerated to about 8.2 per cent, giving RBI room to act and still look responsible on price stability.

In this setting, lower policy rates and injected liquidity reduce funding costs for banks, so they can gradually cut lending rates for home loans, MSMEs and corporates and this supports new investment and higher consumption as EMIs come down. When borrowing becomes cheaper and demand stays healthy, sectors like housing, autos and other rate sensitive consumption areas can see a clear lift in sentiment and activity. At the same time, very low inflation means even after a modest rate cut, real interest rates remain positive, so RBI is still running a fairly conservative policy and can raise rates again if inflation or the rupee start flashing warning signs.

For savers, though, the picture changes, because banks usually trim deposit and FD rates after such a cut, so reinvestment of maturing deposits may fetch lower returns. Existing FDs stay protected till maturity, but fresh money may need a mix of options like FD ladders, good quality bonds or conservative debt funds to balance safety and returns. As real returns on traditional deposits shrink, some investors may steadily shift a part of maturing FDs towards equities or hybrid funds for better long term growth, while still keeping enough in stable fixed income for emergencies and near term goals.