Households to save up to ₹60,000 during repo rate cut cycle, says research. How long will it last?

The Reserve Bank of India (RBI) has reduced the repo rate by 1% since February 2025. With this, we have once again entered the rate-easing cycle last seen during the COVID-19 pandemic.

The RBI also recently changed its monetary policy stance from accommodative to neutral, which means the central bank may or may not immediately further decrease the repo rate.

However, there is no official pause on further repo rate cuts. Amid all this, there is a natural query among investors as to how long this low rate regime will last.

According to an SBI Research report, the easing cycle generally continues for around two years. During this period, the interest cost of households becomes lower.

"On an average, the easing cycle continues for ~2-years, thereby the interest cost of households will continue to decline," SBI Research said in a recent report.

The report estimates that households could save around ₹50,000 to ₹60,000 during the easing cycle.

"As a relief to households through transmission of reduced rates by FIs, If we consider that ~ 80% of the retail & MSME loans portfolio linked to EBLR, then around ₹50,000 to ₹60,000 could be saved by the households."

What should borrowers and FD depositors do?

If you plan to invest in fixed deposits, you may benefit by investing for shorter tenures of 1-2 year and re-deposit once the FD rates start rising again. Alternatively, you may invest in several post office savings schemes where returns are still better than FDs.

If you are planning to take a loan, you should go for repo rate-linked loans. Existing borrowers can use this cycle to reduce their principal by as much as possible by making prepayments at lower interest rates. This will save a lot of money in interest.

Will there be further rate cuts?

The RBI is now expected to take the rate cut decision based on the overall economic situation.

SBI Research said, "MPC decision to go for a relatively mammoth cut, while changing the stance to neutral, should not be confused with a pause on future rate cuts trajectory in the medium term but rather a semblance of adopting flexible maneuverability on part of a conscious regulator to diligently perform a new troika- manage the yield curve and ensure adequate liquidity in the ecosystem, while renewing the pledge to keep growth sacrosanct… mindful of inflationary concerns and checkmating any bubbles formation."