Business News: RBI Decreases Repo Rate For Third Consecutive Time, Loan EMIs Set to Decline

Business News: On June 6, the central bank decreased the repo rate by 50 basis points, lowering it from 6% to 5.5%.  This is the third consecutive reduction in recent months, following similar cuts in February and April. The repo rate, also known as the repurchase rate, is the interest rate at which commercial banks borrow cash from the central bank, generally with government assets as collateral. A fall in this rate lowers banks’ borrowing costs, resulting in lower interest rates on loans to consumers and companies.

Loan EMIs Expected to Decrease

Consider a Rs 10 lakh loan with a 12% interest rate and a five-year repayment period. The monthly EMI for this scenario is around Rs 22,244, with a total payback of Rs 13,34,667, including Rs 3,34,667 in interest paid to the bank. A 100 basis point reduction in the repo rate could result in a new interest rate of 11%, lowering the EMI to Rs 21,742 and total repayment to Rs 13,04,545. This saves Rs 30,122 in interest payments, demonstrating how a repo rate drop can directly help borrowers by reducing their repayment burden.