The RBI’s rate cut on Thursday may sound like a turning point for borrowers. A 25 basis point trim in the repo rate, after a long pause, usually sparks hopes of cheaper loans and lower EMIs. But the real impact doesn’t show up instantly. Monetary policy rarely works on the same day it is announced.
A repo rate cut is more of a signal than a quick-fix. It tells banks that borrowing from the central bank has become cheaper. But banks don’t reprice loans overnight. They watch liquidity conditions, deposit inflows, and their own funding costs before making any move.
That is why the RBI paired the rate cut with a stronger tool — an open market purchase plan of Rs one lakh crore. This injection of durable liquidity is designed to ease funding pressures. Only when banks feel more comfortable with liquidity do lending rates begin to drift down.
Even then, the changes happen in steps. Home loans linked to external benchmarks may see a small reduction over the next few weeks. Personal loans and MSME credit may take longer, especially if borrowers are on older benchmarks. For many customers, the impact will be clearer only after the February policy.
For depositors, the direction is predictable. Deposit rates won’t crash overnight, but they will gradually soften as banks adjust to easier liquidity and lower lending rates. The consolation is that inflation has dropped to historic lows, which means savers are still getting positive real returns even if nominal rates come down slightly.
For the wider economy, the effect of this cut will be felt quietly in the background. Businesses that were holding back due to high borrowing costs may restart expansion plans. Consumer confidence, supported by low inflation, could strengthen further. Lower bond yields also give the government’s borrowing programme more room.
However, this move should be seen for what it is — the start of an easing cycle, not the peak of it. The central bank has chosen a cautious route. A modest cut, a neutral stance, and careful liquidity support suggest that the RBI wants to help growth without risking price stability.
For households and small businesses, the message is straightforward. The rate cut will help you — just not immediately. Expect slow, steady changes rather than sharp relief.
In monetary policy, direction matters more than speed. This cut sets the direction. The next few months will determine how far the RBI is willing to go.