RBI Cuts Interest Rates: What It Means for You

The Reserve Bank of India (RBI) has decided to cut the repo rate by 25 basis points, reducing it from 6.5% to 6.25%. This means banks will have access to cheaper funds, which could lower loan interest rates for businesses and consumers.

The Monetary Policy Committee (MPC), led by the new RBI Governor Sanjay Malhotra, held a three-day meeting starting February 5, 2025, to discuss this decision. This was Malhotra’s first major policy decision since taking over from Shaktikanta Das in December 2024.

Why the Rate Cut Matters

Experts believe this move will increase liquidity in the market, making borrowing cheaper and supporting economic growth. It will also impact sectors like banking, real estate, auto, and consumer goods, as lower interest rates encourage spending and investment.

India’s Growth Forecast for 2025-26

The RBI predicts that India’s economy will grow by 6.7% in 2025-26. The growth rates for different quarters are projected as:

• Q1: 6.7%
• Q2: 7%
• Q3: 6.5%
• Q4: 6.5%

Compared to the previous estimates made in December 2024, these numbers show a slight downward adjustment due to global economic challenges.

Inflation Expected to Ease

RBI expects inflation to remain under control, with an average of 4.2% for FY26. The quarterly breakdown is:

• Q1: 4.5%
• Q2: 4%
• Q3: 3.8%
• Q4: 4.2%

The drop in food prices has helped bring inflation down, giving relief to households.

Who Will Benefit from the Rate Cut?

1. Banks & NBFCs

Lower rates mean banks and non-banking financial companies (NBFCs) can offer cheaper loans, increasing demand. Companies like Bajaj Finance and Shriram Finance could see strong growth, while small finance banks may benefit the most from increased lending.

2. Auto Industry

Car and two-wheeler sales are expected to rise, as lower loan rates make vehicles more affordable. Experts predict Hero Motocorp, TVS Motors, and Maruti Suzuki will benefit first.

3. Consumer Goods & Durables

Cheaper loans could encourage spending on appliances and electronics. Companies like Voltas and Havells are expected to see higher sales as financing costs drop.

4. Real Estate

Lower home loan rates will make buying houses more affordable, especially in the affordable and mid-range segments. The housing market is already strong, and this move could further boost demand.

The Risks: What If Things Don’t Go as Planned?

While markets expect the RBI to continue lowering rates, there is also some uncertainty.

• If the RBI does not announce further rate cuts, it could disappoint investors, leading to a short-term stock market decline.
• Mid-cap and small-cap stocks may see some selling if expectations are not met.
• Bond markets could react negatively, with bond yields rising, which may impact large banks and financial institutions.

Experts say investors are also waiting for the RBI governor’s guidance on future interest rate policies. Any unexpected decision could shake market confidence.

Final Thoughts

The RBI’s decision to cut interest rates is a positive step for businesses, consumers, and the economy. However, future policy moves will be crucial in determining how markets and industries respond.

Disclaimer:
This information is sourced from Money Control and is for informational purposes only. It is not financial advice. Always do your own research or consult a financial expert before making investment decisions.