The Reserve Bank of India (RBI) will announce on June 6 the second bi-monthly monetary policy decision of the current financial year (FY2025-26). In the previous two monetary policy reviews in February and April this year, the RBI cut the repo rate – the rate at which it lends to commercial banks – by 25 basis points (bps) each. The current repo rate stands at 6%.

The repo rate is an important weapon to control the country’s liquidity, inflation and economic stability. In particular, it also affects home loan interest rates. When the RBI increases the repo rate, it becomes expensive for banks to borrow money. This also affects the general public as banks charge this additional expense from the borrowers. The result is that home loan interest rates increase and your EMI (equated monthly installment) also increases. This makes buying a house expensive and puts pressure on the family budget.

At the same time, if RBI reduces the repo rate, money becomes cheaper for banks. They are able to reduce their lending rates, which can reduce your EMI and provide better loan terms. This encourages people to buy homes and increases demand in the real estate market.

Also read: RBI MPC meeting begins: Nomura expects 100 bps rate cut through 2025

Expectations are high again this time that the RBI will cut the repo rate for the third consecutive time.

Amit Modi, Director, County Group, says, “Home loan EMIs today comprise a significant portion of the monthly income for an average urban household. In such a scenario, even a marginal cut in interest rates has a noticeable impact on buyers. A 25-basis point reduction by the RBI can directly bring down EMIs, prompting buyers to take quicker decisions when it comes to property purchases. Especially in regions like Noida, Greater Noida, and the Yamuna Expressway, people are investing with an eye on improved connectivity, modern infrastructure, and future growth potential. If interest rates fall further, it could present a golden opportunity for first-time homebuyers.”

Echoing similar views, Nayan Raheja of Better Choice Realtors said, the consecutive repo rate cuts in February and April have already set a positive tone in the market, leading to a visible uptick in buyer sentiment and housing activity.

If the upcoming monetary policy brings another rate reduction, it could act as a strong growth trigger, especially with the festive season around the corner, he noted.

Atul Monga, CEO and Co-Founder, BASIC Home Loan, also expects at least a 25 bps cut this time.

He says, “I expect another 25 bps rate cut, given the downward trend in inflation and the need to strengthen consumer confidence in an uncertain global economic and geopolitical climate. A stable and lower interest rate environment would not only improve affordability but also drive long-term momentum for home ownership, especially in the affordable and mid-income housing segments.”

In April 2025, RBI cut the repo rate for the second time by 0.25% and brought it to 6.0%. This decision was taken unanimously by the MPC.

Also read: Is the RBI poised for hat-trick’ rate cut: 3 reasons why economists see another 25 bps relief coming

How will the change in repo rate affect home loans?

The repo rate does not have a direct impact on home loans, but it does have an impact. When the RBI increases the repo rate, money becomes costlier for banks, which ultimately comes to borrowers in the form of rising interest rates.

This impact is not seen immediately, but gradually affects all types of loans. Especially those with floating rate home loans may see an increase in EMI as their interest rate depends on the bank’s internal benchmark rate, which is affected by the repo rate.

While calculating EMI, banks consider three main things – cost of borrowing, internal benchmark rate and credit risk spread. Each of these is affected by the repo rate.