RBI Cuts Repo Rate by 50 Basis Points: Auto Loan Borrowers Could See EMI Decrease

The Reserve Bank of India has surprised the market with a larger-than-expected repo rate cut, reducing it by 50 basis points to 5.5%. This marks the 3rd consecutive rate cut in 2025, with a total reduction of 100 basis points this year. In a parallel move, the cash reserve ratio (CRR) has also been slashed by 100 basis points, bringing it down to 3%, which could release around ₹2.5 lakh crore into the banking system. 

This decision is expected to ease credit conditions and encourage spending, especially in the retail loan segment, such as home and auto loans.

RBI's Third Consecutive Rate Cut in 2025

The RBI’s decision to cut the repo rate by 50 basis points comes at a time when the market had anticipated a smaller cut of 25 basis points. This is the third consecutive policy move by the RBI this year aimed at supporting growth by making credit cheaper and more accessible.

With the repo rate now at 5.5%, the total reduction so far in 2025 stands at 100 basis points. This monetary easing is targeted at improving liquidity, reducing borrowing costs and stimulating both consumption and investment.

Savings on Auto Loan EMIs After Rate Cut

For consumers, one of the immediate areas of benefit could be auto loans. These loans fall under the retail segment and are typically linked to floating interest rates, which respond to changes in the repo rate.

Assuming the full 0.5% cut is passed on by banks, here is a comparison of the EMI and interest cost before and after the rate cut for auto loans of ₹2 lakh and ₹10 lakh over a 5-year period.

For a ₹2 lakh loan at 9.5% for 5 years (Before Rate Cut)

• EMI: ₹4,200 per month
   
• Interest: ₹52,022
   
• Total Repayable Amount: ₹2,52,022

For a ₹2 lakh loan at 9% for 5 years (After Rate Cut)

• EMI: ₹4,152 per month
   
• Interest: ₹49,100
   
• Total Repayable Amount: ₹2,49,100

Savings: ₹2,922 over the loan tenure

For a ₹10 lakh loan at 9.5% for 5 years (Before Rate Cut)

• EMI: ₹21,002 per month
   
• Interest: ₹2,60,112
   
• Total Repayable Amount: ₹12,60,112

For a ₹10 lakh loan at 9% for 5 years (After Rate Cut)

• EMI: ₹20,758 per month
   
• Interest: ₹2,45,501
   
• Total Repayable Amount: ₹12,45,501

Savings: ₹14,611 over the loan tenure

Read More: RBI Cuts Repo Rate by 50 bps in June 2025: Will Your Home Loan EMI Decrease?

CRR Cut to 3% Will Infuse ₹2.5 Lakh Crore into System

Along with the repo rate, the RBI has also reduced the cash reserve ratio from 4% to 3%. This 100 basis point cut is expected to release ₹2.5 lakh crore into the banking system, giving banks more funds to lend. This move is likely to benefit various sectors by enhancing credit flow and supporting demand revival.

Conclusion 

If commercial banks choose to pass on the entire benefit of the rate cut to customers, borrowers may witness notable savings on their EMIs across various types of loans. The reduction in CRR further strengthens banks' ability to lend, potentially lowering lending rates even more in the near term.

For existing borrowers with floating-rate loans, especially in the home and auto loan segments, this development could bring meaningful financial relief.
 

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