India’s largest public sector bank, State Bank of India (SBI), has indicated that interest rates could fall even further if the Reserve Bank of India (RBI) continues to reduce the repo rate over the next two years. This forecast has sparked significant interest among borrowers, investors, and financial professionals alike.
The repo rate, which is the rate at which RBI lends money to commercial banks, directly influences the lending and deposit rates set by banks. With the RBI already implementing cuts and signaling further reductions, this could lead to cheaper loans but also lower fixed deposit (FD) returns.
SBI Says Interest Rates
| Feature | Details |
|---|---|
| Prediction by SBI | Interest rates could drop more if repo rate cuts continue for two years |
| RBI Repo Rate Trend | Expected 100 basis points cut in FY 2025-26 |
| Impact on Borrowers | Lower EMIs for home, auto, and personal loans |
| Impact on Savers | Reduced FD and savings interest rates |
| Advice for Professionals | Refinance loans, consider FD laddering strategy |
| Official RBI Website | rbi.org.in |
The statement by SBI signals a clear message: interest rates may continue to fall, and both borrowers and savers must adapt their financial strategies accordingly. With the RBI’s accommodative stance and expectations of further repo rate cuts, it’s essential to stay informed and make proactive financial decisions.
For borrowers, the outlook presents an opportunity to save money on EMIs, while savers should consider diversifying to maintain returns. Use tools and stay connected to reputable financial news to make the most of the evolving rate environment.
Stay vigilant, track trends, and adapt your personal or professional financial plans to ensure resilience and profitability.
Understanding the Repo Rate and Its Impact
The repo rate is a powerful tool used by the RBI to control inflation and stabilize the economy. When the repo rate goes down:
- Banks get cheaper funds from the RBI.
- Loan interest rates for borrowers reduce, making EMIs more affordable.
- Interest rates on savings and deposits tend to fall, reducing returns for savers.
Why Is RBI Cutting the Repo Rate?
According to the RBI’s latest statements, headline inflation is under control, staying within the target range of 2–6%. The Consumer Price Index (CPI) has been hovering around 3.5%, which gives the RBI room to lower the repo rate further to stimulate growth.
The Indian economy is facing slower credit demand, global macroeconomic uncertainty, and moderate consumption growth, so the central bank is shifting towards a more supportive monetary policy stance to fuel growth and maintain financial stability.
What SBI Says
A recent report from SBI Research suggests that if the repo rate is reduced by another 100 basis points over FY 2025-26, it could lead to:
- Further decline in bank lending rates.
- More affordable loans for businesses and individuals.
- Potential challenges for savers looking for fixed-income returns.
- An increase in credit demand and potential revival in capital expenditure (capex) by corporates.
Practical Advice: What Should You Do Now?
Whether you’re a borrower, saver, or a finance professional, understanding how to respond to falling interest rates is key to safeguarding and growing your money.
If You’re a Borrower
1. Lock in Fixed-Rate Loans
Variable-rate loans may fall in the short term, but if you’re risk-averse, consider switching to a fixed-rate loan now to benefit from current rates.
2. Refinance Your Existing Loans
Homeowners and entrepreneurs can refinance existing loans at lower interest rates. For instance, SBI and other major lenders have already reduced their Repo-Linked Lending Rates (RLLR) by 25 basis points.
3. Negotiate with Lenders
If you’re a long-time customer with a good credit score, negotiate for better terms on your loan.
4. Watch for Festive Offers
Banks often launch seasonal loan offers with discounted processing fees and special rates—especially during festivals.
5. Monitor Prepayment Terms
With lower EMIs, consider prepaying loans in parts to reduce tenure and total interest outgo. Review your bank’s foreclosure policies.
If You’re a Saver
1. Use FD Laddering
FD laddering involves investing in multiple fixed deposits with different maturity dates. This strategy helps manage reinvestment risk as interest rates change.
2. Look Beyond Traditional FDs
Explore corporate FDs, government bonds, RBI floating rate savings bonds, and debt mutual funds for better yields. Always assess the credit risk involved.
3. Lock in Long-Term Rates Now
If you rely heavily on interest income, consider locking in long-term deposits before rates fall further.
4. Use High-Interest Savings Accounts
Some small finance banks and digital banks offer higher interest rates on savings—look into regulated entities offering up to 7% p.a..
5. Diversify Income Sources
Consider diversifying into REITs, dividend-paying stocks, and income-generating mutual funds to maintain cash flow amid low deposit rates.
Sector-Wise Impact Analysis
Real Estate
Lower interest rates generally fuel the real estate sector, as cheaper home loans make property purchases more affordable.
Automotive Industry
Car loans become more attractive, potentially boosting vehicle sales.
MSMEs and Startups
With lower cost of capital, small businesses and startups may find it easier to borrow and expand operations.
Banking Sector
While banks benefit from higher loan demand, net interest margins (NIMs) could be squeezed due to lower lending-deposit spreads.
Stock Market
Lower interest rates often lead to higher equity market activity, as investors move funds away from debt instruments toward equities.
Government Fiscal Policy
Lower borrowing costs reduce the government’s cost of funding fiscal deficits, potentially allowing more capital for infrastructure spending and welfare programs.
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FAQs
Q1: What is the current repo rate?
As of June 2025, the RBI repo rate stands at 6.00%.
Q2: Will all banks reduce interest rates?
Most banks follow the RBI’s lead, especially on repo-linked loans, but the pace and extent vary.
Q3: How will this affect my fixed deposit?
Your FD returns may decrease over the coming months. Now is a good time to lock in existing higher rates.
Q4: Can I negotiate my loan interest rate with my bank?
Yes. Many banks allow negotiations, especially if you have a good credit score or maintain a long-standing relationship.
Q5: Is this a good time to take a home loan?
Absolutely. Falling interest rates make home loans cheaper, reducing your EMI burden over time.
Q6: Will stock markets be affected by repo rate cuts?
Yes. Historically, lower interest rates boost stock markets as investors seek better returns than fixed income products.
Q7: How often does the RBI review the repo rate?
The RBI’s Monetary Policy Committee (MPC) meets every two months to review and decide on policy rates.
Q8: What risks should I watch out for during a low-rate cycle?
Watch for rising inflation, currency fluctuations, and asset bubbles due to excess liquidity and low borrowing costs.
