RBI Repo Rate Cut In 2025: Best Investment Moves To Make Right Now
On 6th June 2025, the RBI announced a 0.5% repo rate cut, contrary to market expectations of 0.25%. This move has significant implications, particularly for the bond market and the broader Indian economy.
Let us take a look at the RBI repo rate cut impact on the bond market and the Indian economy.
RBI Repo Rate Cut 2025: What Has Changed?
The Reserve Bank of India lowered the repo rate by 0.5% or 50 basis points. RBI repo rate cut effective date was 6th June, 2025. This is the third rate cut delivered by the RBI in 2025, and the repo rate has been reduced by a total of 1% or 100 basis points in 2025, from 6.5% to 5.5%.
The rate cut decision was taken since the inflation rate in India stood at 3.16% in April 2025. Here are the other monetary policy changes and economic projections from the RBI meeting1:
1. CRR (Cash Reserve Ratio) - reduced by 100 basis points from 4% to 3%.
2. SDF (Standing Deposit Facility) rate - reduced by 25 basis points to 5.25%.
3. MSF (Marginal Standing Facility) rate - reduced by 25 basis points to 5.75%.
4. Consumer Price Inflation forecast for FY26 - 3.7%.
5. Real GDP growth forecast for FY26 - 6.5%.
Banks across the country are set to follow the RBI move and reduce borrowing rates, making it easier for people to borrow money2.
Impact Of Repo Rate Cut On Fixed Deposits
The rate at which banks borrow funds from the central bank is known as the repo rate. Fixed deposit rates after repo cut are lowered by banks.
FD Rates Set to Fall
RBI money policy impact can also be negative. When the RBI increases the repo rate, it becomes more expensive for banks to borrow money from the RBI. To manage this higher cost, banks raise lending rates and also offer higher interest on fixed deposits to attract customer funds.
On the other hand, when the repo rate is reduced, borrowing becomes cheaper for banks, leading them to lower both lending and deposit rates to stay competitive and maintain their profit margins.
For example, since February 2025 (when the RBI did the first rate cut after 2020), banks have reduced FD rates by 30-70 basis points. Therefore, the RBI rate cuts can potentially lead to a further reduction in FD interest rates by banks3.
Strategies For FD Investors
Let us take a look at investment strategies after RBI rate cut:
1. Laddering: Laddering refers to depositing money in FD with different maturities. This helps in maintaining liquidity and returns. For example, an investor might choose to divide their deposits between FDs maturing after 3, 6, 12 and 24 months.
2. Locking Rates: Investors can lock in their funds in FDs with longer durations. Banks usually take time to lower longer-duration FD rates. Therefore you can consider checking the FD rates of different banks and select an FD that suits your needs.
3. Alternatives: Investors can transfer their funds from FDs to other options, like debt mutual funds or corporate bonds. Although these alternatives might have slightly higher risk, they can provide diversification to investors.
Impact Of Repo Rate Cut On Bonds And Debt Mutual Funds
RBI repo rate cut impact on bond market can be significant, let us understand in details.
Bond Prices and Yields
Bond prices and bond yields have an inverse relationship. When bond yields fall, the prices of bonds increase and vice versa.
This happens when the price of a bond goes up, the fixed interest (or coupon payment) being offered becomes a smaller percentage of the new, higher price, so the yield falls.
If the price drops, the same fixed interest becomes a larger percentage of the new lower bond price, so the yield rises.
When RBI reduces rates, bond yields fall, and prices of government bonds increase. For example, since the RBI started its rate-cutting cycle in February 2025, there has been a sharp decline in the Indian government bond (10Y) yields.
The bond market reaction after the rate cut on 6th June 2025 was negative4. The Indian Government's 10-year bond yields registered a low of 6.14%. But, later climbed to 6.29% as RBI shifted its stance to neutral, signalling limited rate cuts.
Best Moves For Bond Investors
Let us take a look at the best move for bond investors amid the RBI repo rate cut 2025.
1. Long Duration Bonds: Investors can invest in long-duration bonds since they offer price appreciation during rate cuts, but they carry interest rate risk.
2. Short-Duration Bonds: For stability, investors can invest in short-tenure bonds since they can be less volatile and can help investors lock in current interest rates.
3. Corporate Bonds: Investors can invest in short-tenure, high-quality corporate bonds that can provide slightly higher yields than FDs. These bonds carry less interest rate risk as compared to long-term bonds.
Grip Marketplace offers high-quality, high-yield, short-tenure, properly vetted corporate bonds.
4. Dynamic Bond Funds: These funds adjust their portfolio duration by shifting between bonds with short and long-term maturities, based on the interest rate outlook.
When interest rates are expected to fall, they increase exposure to long-duration bonds to benefit from potential price appreciation. On the other hand, if rates are likely to rise, they reduce duration to limit interest rate risk.
5. Aggressive Hybrid Funds: Aggressive hybrid funds invest 65 - 80% of their portfolio in equities and rest in debt and debt-related instruments5.
These funds have the potential to outperform in a low-rate environment, if the equities markets remain supportive.
6. Sectoral Funds: Sectoral Funds focused on real estate, infrastructure, and auto can attract inflows as rate cuts often benefit these rate-sensitive sectors.
These sectors can offer growth potential for investors seeking exposure to particular themes.
Stock Market Reactions
Understanding the impact of repo rate cuts on the stock market is essential for investors to make informed decisions.
Stocks And Interest Rates
A lower borrowing cost can increase corporate profits since the expenses of paying interest on loans are reduced. At the same time, rate cuts also increase disposable incomes in the hands of the public, which leads to higher spending. This usually boosts the stock markets higher.
For example, after the rate cut announcement on 6th June 2025, the Nifty 50 index closed 1.02% higher at 25,003.05 for the day6. This shows that a rate cut announcement results in a positive market sentiment.
Sector-Wise: Winners And Losers
A few sectors can benefit from the rate cut, whereas others can face some difficulties. Here is how repo rate affect investments in different sectors:
Winners
1. Banking and NBFC: Cheaper interest rates lead to higher borrowing, which can benefit the banks and Non-Banking Financial Companies (NBFCs). Especially for financial institutions having a strong retail presence.
2. Real Estate: Rate cuts make home loans cheaper. Thus making it easier for people to take home loans. Therefore, boosting the real estate market.
3. Auto Sector: The auto sector can also see an increase since low interest rates mean cheaper auto loans.
4. Capital Intensive Sector: Lower borrowing costs will help sectors in which companies have high financing requirements, like cement, construction, etc.
Losers:
1. Import-Dependent Sectors: Those sectors and companies which depend on imports can suffer since a rate cut makes the Indian rupee cheaper than foreign currencies, making imports more expensive.
2. Defensive Sectors: After a rate cut, the defensive sector can become less attractive for investors since other sectors look attractive due to better future prospects.
Loans And Borrowing Costs
In response to the central bank lowering the repo rate, commercial banks follow by cutting lending rates. Since banks receive funds at a lower rate, they lend at a lower rate to remain competitive. Loans and borrowing costs are directly impacted by RBI repo rate cut 2025.
Cheaper Loans Ahead
When the RBI cuts interest rates, home loans, personal loans, and auto loans become cheaper. The monthly EMI is reduced significantly on these loans.
After the RBI cut the repo rate on 6th June 2025, four Indian public sector banks - Bank of Baroda, Punjab National Bank, Bank of India and Indian Bank have also reduced their loan rates by 0.5%7.
RBI rate cut impact on home loans could be understood with an example. Assume that a home loan of INR 40 lakhs for 20 years will have an EMI of INR 34,713 at 8.5% and an EMI of INR 33,458 at an 8% interest rate. A difference of INR 1,255 each month.
Should You Refinance Now?
Yes, after a rate cut, if the interest rate on your loan is not already linked to the repo rate, you can consider refinancing the loan.
But you have to make sure that the costs associated with refinancing are lower than the savings you will get from refinancing.
Smart Strategies In A Falling Rate Environment
Rate cuts are a time when existing bond prices rise, and returns on new bonds are low. Let us look at some best investment options after the repo rate cut.
1. Lock-in Current Yields: If you expect the rates to fall further, you can purchase bonds at the existing rates to lock in the current level of interest rates.
2. Shift to Corporate Bonds: High-quality corporate bonds can have the potential to offer better yields as compared to government bonds. Investors can diversify their bond portfolio in these bonds.
Grip Invest Bond Marketplace can be used by investors to find high quality, short tenure, high yield corporate bonds. The platform also allows investors to sell their bond holdings easily, thus solving the liquidity issues associated with corporate bonds.
Conclusion
The RBI rate cut decision, announced on 6th June 2025, is a positive move for borrowers since banks are reducing lending rates and making loans cheaper. At the same time, FD rates are also lowered, making it slightly less attractive for FD investors. Investors can look for alternative fixed-income investments like corporate bonds during interest rate changes in India.
Login to Grip Invest to explore a wide range of SEBI-regulated, high-yield fixed-income products designed to help you earn better returns even in a falling interest rate environment.
FAQs On RBI Repo Rate Cut On Bonds
1. Will FD rates fall further after the RBI repo rate cut?
Yes, FD rates can fall further depending on the financial institutions. Some financial institutions might not have announced FD rate cuts yet and might do so in the future. Also, if RBI cuts rates further, then FD rates can also fall further.
2. How do bond prices react to repo rate changes?
The prices of bonds react inversely to repo rate changes. If the repo rate is lowered, then the prices of bonds increase, and when the repo rate is hiked, the prices of bonds decrease. Investors who are holding bonds before the rate cut can benefit from a bond price rise after the repo rate cut move by the RBI.
3. Should I refinance my home loan after a repo rate cut?
If your home loan is based on a floating rate, it will auto-adjust, and your next EMI payment will be lowered. If your loan is a fixed-rate loan, refinancing can be a better option if the cost of refinancing is lower than the saving on interest payment on the new loan.
References
1. Economic Times, accessed from: https://economictimes.indiatimes.com/news/economy/policy/rbi-mpc-2025-repo-rate-change-6-june-2025-announcement-key-highlights-and-economic-impact-sanjay-malhotra-and-co-announces-key-decisions-50-bps-repo-rate-cut/articleshow/121664178.cms
2. Economic Times, accessed from: https://economictimes.indiatimes.com/news/economy/policy/rbi-mpc-2025-repo-rate-change-6-june-2025-announcement-key-highlights-and-economic-impact-sanjay-malhotra-and-co-announces-key-decisions-50-bps-repo-rate-cut/articleshow/121664178.cms
3. Business Today, accessed from: https://www.businesstoday.in/personal-finance/banking/story/fd-rates-falling-after-rbis-big-rate-cut-why-fd-investors-must-act-now-to-avoid-losing-lakhs-479280-2025-06-06
4. Economic Times, accessed from: https://economictimes.indiatimes.com/markets/bonds/bond-yields-up-despite-higher-rate-cut/articleshow/121688316.cms?utm_source=chatgpt.com&from=mdr
5. Association Of Mutual Funds In India, accessed from: https://www.amfiindia.com/investor-corner/knowledge-center/SEBI-categorization-of-mutual-fund-schemes.html
6. The Hindu Business Line, accessed from: https://www.thehindubusinessline.com/markets/share-market-nifty-sensex-live-updates-6-june-2025/article69660480.ece
7. Economic Times, accessed from: https://economictimes.indiatimes.com/wealth/borrow/good-news-for-borrowers-home-loan-rates-cut-by-pnb-bob-boi-indian-bank/articleshow/121722069.cms?from=mdr
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