In a move aimed at stimulating economic growth, the Reserve Bank of India’s Monetary Policy Committee has reduced the repo rate by 25 basis points to 6%. This marks the second consecutive rate cut and signals a shift in the central bank’s monetary stance from ‘neutral’ to ‘accommodative.’
The decision comes amid heightened global uncertainties, including escalating trade tensions and slowing economic indicators worldwide. Analysts see the rate cut as a timely intervention, particularly for the auto sector, which continues to grapple with subdued demand.
As global growth concerns mount, sparked in part by reciprocal tariffs led by the United States, the RBI’s policy pivot is seen as a proactive step to support domestic momentum and cushion against external shocks.
“Global economic outlook is rapidly evolving. FY26 has begun on a cautious note, and some global trade frictions are starting to materialize,” said RBI Governor Sanjay Malhotra, acknowledging rising global economic pressures.
The repo rate—RBI’s benchmark lending rate to commercial banks—has been reduced by 25 basis points to 6%. This move is expected to lower borrowing costs for banks, which, if passed on to consumers, could translate into more affordable auto, home, and personal loans. Lower interest rates can, in turn, drive consumer spending and boost investment across key sectors.
One of the immediate beneficiaries of this policy shift is likely to be the automobile industry, which has been navigating inconsistent demand trends. The Society of Indian Automobile Manufacturers (SIAM) welcomed the decision, stating that the rate cut comes at an opportune moment and could offer much-needed momentum to the sector.
Lower car loan interest rates could encourage more consumers to consider purchasing vehicles, particularly as banks and financial institutions adjust their lending rates. With a large share of passenger vehicle sales being credit-financed, even a modest reduction in interest rates can significantly influence buyer sentiment.
However, the broader auto retail landscape remains mixed. According to data from the Federation of Automobile Dealers Associations (FADA), India’s overall automobile retail sales declined by 0.7% year-on-year in March. While passenger vehicles and commercial vehicles posted gains of 6% and 2.6%, respectively, two-wheelers, three-wheelers, and tractors saw declines of 1.7%, 5.6%, and 5.7%.
