Repo Rate in FY 2025-26: SBI Research predicts 0.75% cut from April 1; how will borrowers benefit?

The RBI started the current repo rate cut cycle in February 2025 by slashing the key lending rate by 0.25% to 6.25%. According to SBI Research, the central bank is likely to further slash the repo rate by at least 0.75% in this cycle.

"With benign inflation this month and going forward, we expect a cumulative rate cut over the cycle could be at least 75 basis points, with successive rate cuts in the next policy April and August 2025. With an intervening gap in Aug’25, the rate cuts cycle could restart from Oct’25," SBI Research said.

How will it benefit borrowers?

Borrowers will benefit from a further reduction in the key lending rate if they have taken repo-rate-linked home or other loans, or planning to do so.

The interest rate of repo rate-linked loans moves along with the repo rate cycle. Therefore, when the RBI reduces the repo rate, banks have to also reduce the rate for repo-rate-linked loans. The opposite happens when the repo rate goes up.

Inflation trend

The report predicts that the CPI inflation may come down to 3.9% in Q4 FY25 and average to 4.7% in FY25. "Based on this trend, we expect FY26 inflation may come 4.0-4.2% and core inflation in the range of 4.2% to 4.4%."

The RBI adjusts the repo rate through bi-monthly monetary policy meetings to keep a check on inflation.

The CPI inflation in February 2025 moderated to a seven-month low of 3.6% as food and vegetable prices moderated. However, there was a variance in the inflation rate at the state level. SBI Research said inflation in some bigger states was higher than the all-India average. For instance, CPI inflation in Kerala in February was 7.3% but only 1.5% in Delhi.