Big Relief for Home Loan Borrowers? RBI Rate Cut Rumoured Ahead of February Policy Meet

Home loan borrowers across India have been watching the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) decisions closely. With inflation remaining moderate and economic growth fairly stable, speculation has intensified ahead of the February 6, 2026 policy meeting about the possibility of another reduction in the key policy rate. 

Lower policy rates typically mean cheaper loan costs, offering much-needed relief to households servicing mortgages.

What Is the Repo Rate and Why Does It Matter?

The repo rate is the interest rate at which the RBI lends short-term funds to commercial banks. When the repo rate is lowered, borrowing becomes cheaper for banks, which in turn can reduce the lending rates they charge customers. 

This matters for home loans and other credit products because many floating-rate loans are directly or indirectly linked to the repo rate or benchmarks derived from it.

In recent policy cycles, RBI has already eased monetary conditions. For instance, cumulative rate cuts in 2025 significantly reduced the repo rate, which has helped nudge down lending rates across the banking system. 

These adjustments reflect improved inflation dynamics and efforts by the central bank to support broader growth.

Expected Rate Cut and Its Direct Effect on EMIs

Analysts and market watchers had speculated that the RBI might announce a 25 basis points (0.25%) cut in the repo rate at the February 6 meeting, taking it to around 5.25% if the forecasts hold. Such a move would continue the easing trend seen over the past year.

A reduction of this magnitude, if passed on fully by banks, could translate into tangible savings for borrowers. For example, for someone with a long-term housing loan of ₹50 lakh taken at standard market rates, even a modest rate cut can shave significant amounts off monthly equated monthly instalments (EMIs) and reduce lifetime interest costs.

However, transmission of RBI’s rate changes into consumer loan rates is not always immediate. Banks typically adjust their repo-linked lending rates (RLLR) or marginal cost of funds-based lending rates (MCLR) in response to policy shifts, and the timing and magnitude of these adjustments vary across lenders.

Transmission, Banking Response and Market Signals

Even before the February meeting, some lenders were already cutting their benchmark lending rates in line with previous rate reductions, making home loans more affordable in practice this past year. Major public and private sector banks have slashed their RLLR or other benchmark rates, lowering the effective cost of borrowing for new and existing borrowers.

Market watchers also pay attention to bond yields and banking stock reactions to changing rate expectations. Lower yields in government securities sometimes signal that markets are anticipating slower inflation or expectations of easier credit, which can create a conducive environment for rate cuts.

Why Economists Might Still Expect a Pause Instead

Despite these expectations, other surveys suggest that the RBI might hold the repo rate unchanged at 5.25% in the February meet, rather than cut it further. 

A recent poll of economists indicated that most see the central bank maintaining its current stance, given that inflation has stayed within target ranges and previous rate reductions have already provided notable easing.

This view underscores that while rate cuts help, the RBI closely balances inflation control and growth, and may choose to assess recent easing measures’ effectiveness before slashing further.

What This All Means for Home Loan Borrowers

If the repo rate is indeed cut and banks pass on the benefit, many borrowers could see their EMIs reduce further, easing monthly cash flows. Even a 0.25% reduction can mean savings in hundreds or thousands of rupees every month over long loan tenures.

However, the extent of the benefit will depend on how quickly and fully lenders adjust their retail loan rates. Borrowers already in floating-rate contracts should check with their bank on when the new rates will be applied to their accounts.

For prospective homebuyers, a favourable lending environment may improve affordability and could encourage decisions on buying property or refinancing existing loans.