RBI repo rate: Is the party of home loan borrowers over after RBI pauses repo rate for second time in a row?

The Reserve Bank of India (RBI) in its three-day Monetary Policy Meeting (MPC) concluded today (October 1, 2025, Wednesday) kept the repo rate unchanged at 5.5%. It was the second time after the August MPC meeting that the central bank has maintained the repo rate. The RBI has reduced the repo rate by 100 bps this year with 25 bps each in February and April 2025 and 50 bps in June.

"The cumulative 100 basis point rate cut delivered so far this year has already enhanced borrowing affordability in a meaningful way. To put this into perspective, a 100 bps cut reduces the EMI on a Rs 1 lakh loan with a 20-year tenure by approximately Rs 65 per lakh—translating into savings of nearly Rs 1,625 and Rs 3,250 respectively for loans of Rs 25 lakh and Rs 50 lakh," says Raoul Kapoor, Co CEO, Andromeda Sales and Distribution.

With the second consecutive rate cut pause, the big question is whether floating home loan borrowers continue enjoying the benefit of bank rate cuts, or is it the end of their party?


Also read | Time for FD investors to make most of the current interest rates as fall in fixed deposit rates to continue

As far as floating rate borrowers, who have taken loans from a bank after October 1, 2019 in EBLR regime, are concerned most of them get immediate benefit of a repo rate cut by the central bank. Any reduction in home loan interest rate results in direct savings for borrowers. Most of the new home loans these days are floating rate loans, linked to the repo rate. As a result, when the RBI cuts the repo rate, banks also follow in its footsteps, cutting home loan rates soon. However, pause in repo rate means these borrowers are unlikely to see any immediate reduction in their EMI or tenure.

However, old borrowers, who are still continuing to be in old interest rate regimes like MCLR, base rate or BPLR and paying a much higher interest rate than EBLR borrowers, are likely to see some reductions in their interest rates as the transmission of reduction of interest rate is slow in these regimes.

Will there be further rate cuts in coming months?

There are many factors which indicate that a rate cut in coming months cannot be ruled out.

It is important to know that the RBI’s pause has come a day after the Finance Ministry didn’t change the interest rates of post office small savings schemes. It also indicates that at a time when the government is not slashing interest rates on its small savings scheme, while banks have cut rates on their fixed deposit schemes, banks may find it increasingly difficult to cut interest rates on loans.

"RBI projects next year CPI Inflation at 4.5 percent due to higher base, with fourth quarter CPI inflation at 3.9 in 2026-27. They are projecting GDP growth at 6.6 percent for next year. This growth seems to be below potential GDP growth given continuous undershooting of CPI inflation. This should open space to cut rates in the coming monetary policy meetings," says Murthy Nagarajan, Head-Fixed Income, Tata Asset Management.

"We believe RBI can cut policy rates by 25-50 bps in the upcoming policies depending on growth inflation dynamics. Given the easy liquidity and possible of further rate cuts, we believe short to medium end of the yield curve remains best placed," says Anurag Mittal, Head of Fixed Income at UTI AMC.

"Banks are yet to fully transmit the earlier 100 basis points repo rate reduction and is expected to be completed soon in the ongoing festive season. This is expected to benefit the real estate sector, especially homebuyers in the affordable and mid-income segments," says Vimal Nadar, National Director and Head of Research, Colliers India.

"They lowered expected inflation CPI for FY26 to 2.6% from 3.1% and increased expected growth to 6.8% from 6.5%. The policy essentially opens the door for potential rate cuts in future and described at dovish pause," said Vishal Goenka, co-founder of IndiaBonds.com.

"The RBI Governor delivered a dovish pause, broadly in line with market expectations, signalling room for further accommodation should the headline inflation numbers be higher," Chanchal Agarwal, CIO Equirus Family Office.

"The RBI’s revised inflation outlook for FY26 at 2.6% underlines confidence in a sustained cooling trend, with CPI already at 2.1% in August. This gives enough headroom to sustain growth-friendly rates while staying alert to macroeconomic shocks," said Atul Monga, CEO & co-founder, BASIC Home Loan.

Retail inflation is not an immediate concern for RBI

Retail inflation is one of the primary focus areas of the RBI upon which, the central bank decides whether to change the policy rates or not. India’s consumer price inflation rose to 2.07% in August 2025 from 1.61% in July, marking the first monthly increase in 10 months. Despite this uptick, inflation remains below the RBI’s 4% target and within its prescribed tolerance band, with higher food prices driving the increase, as per a Bajaj Broking report.

Lower retail inflation gives comfort to RBI to reduce the rates in coming months and if other factors are also conducive the central bank can consider a rate cut.

However, the risk of spike in retail inflation can not be ruled out completely. “Recent rationalization measures in the Goods and Services Tax (GST) are expected to ease retail prices further, potentially moderating inflation in the near term. However, economists caution that factors such as global commodity price fluctuations and domestic demand pressures could push inflation upward in the coming months,” says Bajaj Broking in its report.

What does 10-year G-Sec bond yield suggest about repo rate?

The 10-year government bond yield which rose to 6.843% on January 13 this year fell to 6.571% on September30, 2025. While the yield has seen a big amount of fluctuation it is marginally down from where it was hovering at the beginning of the year. This indicates that bond markets are expecting only a mild rate cut or a pause in the near term.

Home loan borrowers: What should be your action plan now?

Since there are no rate cuts, it is highly likely that banks will also not cut rates of their floating loans. However, whenever rate cut happens, borrowers with loans linked to EBLR gets faster loan rate cuts compared to borrowers with loans linked to old interest rate regimes like MCLR, base rate and BPLR.

Home loan linked to EBLR: As a majority of floating rate interest rate of home loans taken from banks is linked to an External Benchmark Lending Rate, which is repo rate in most cases, when the repo rate is cut, home loan interest rate comes down.

Once it happens, the lender chooses to go for reduction of the interest rate, it gives a borrower the option to either reduce their EMI by keeping the same home loan tenure or keep the EMI unchanged and get a reduced home loan tenure. According to experts, reducing the home loan tenure offers more benefits in the long term.

Home loans linked to MCLR, base rate or BPLR: A lot of home loans are linked to MCLR. MCLR has a longer reset period than EBLR. In a falling interest rate scenario, it is beneficial to have an interest rate regime, which is faster in passing the benefit of interest rate reduction.