In a bold and unexpected move, the Reserve Bank of India (RBI) on June 6 slashed its key repo rate by 50 basis points, bringing it down from 6% to 5.5%. This aggressive cut—RBI’s most significant since the Covid-era—aims to inject much-needed liquidity into the economy, ease loan burdens, and stimulate growth across key sectors.

What the Repo Rate Cut Means

The repo rate is the rate at which RBI lends money to banks. When this rate is reduced, banks get cheaper access to funds. This generally leads to a reduction in loan interest rates for customers, offering relief in EMIs for home, auto, and business loans.

The latest move also included a 100 bps reduction in the Cash Reserve Ratio (CRR), which provides additional liquidity for banks to lend more efficiently.

“The 50 bps rate cut, coupled with a 100 bps CRR cut, gives banks more headroom to pass on benefits to consumers and businesses,” said Vijay Kuppa, CEO of InCred Money.

However, the MPC’s stance shifted from ‘Accommodative’ to ‘Neutral’, signaling that more rate cuts may not be on the cards soon. Future actions will depend on inflation and growth patterns.

Sector-Wise Impact of RBI’s Rate Cut

🏦 Banking and NBFCs

Banks may face pressure on their net interest margins (NIMs) as loan rates drop faster than deposit rates. However, the credit growth outlook, especially in retail and MSME sectors, remains strong.

NBFCs, particularly non-deposit-taking ones, are expected to benefit first due to quicker rate transmission. As liquidity improves, loan approvals and disbursements may rise, helping in credit expansion.

🏘️ Real Estate

Lower home loan rates bring a ray of hope for the struggling real estate sector. The cut is expected to boost affordability for homebuyers and reduce the burden of existing EMIs.

“With over 4.5 lakh unsold homes in metros, this cut can reignite housing demand,” say experts.

Demand from Tier 2 and Tier 3 cities is projected to grow substantially, giving a boost to regional developers and local housing markets.

🚗 Automobiles

The automobile sector, especially entry-level car and two-wheeler buyers, is likely to benefit from lower EMIs. The rate cut could also revive rural demand for tractors and two-wheelers, which has been sluggish recently.

Passenger vehicle bookings had already risen by 11% after the previous rate cut in April, and a similar trend could follow now.

🛒 FMCG and Consumer Durables

Lower EMIs leave more disposable income in consumers’ hands, potentially increasing discretionary spending. This is likely to benefit FMCG and consumer durables, particularly in rural India.

Rural FMCG sales have already shown growth, and the added liquidity could strengthen this trend even further.

🏗️ Infrastructure and Capex-Heavy Industries

Sectors like steel, cement, and capital goods, which are heavily dependent on capital expenditure, will benefit from the reduced cost of capital.

The Gati Shakti programme, India’s infrastructure development mission, could see faster project implementation, with financing becoming more affordable.

💻 IT and Export-Oriented Companies

The rupee initially dropped to nearly 86 against the dollar on expectations of a rate cut but recovered to 85.625 after market optimism. However, a weaker rupee generally boosts margins for export-heavy sectors like IT.

“If the rupee weakens, companies like Infosys, TCS, and Coforge stand to gain. But a stronger rupee could compress margins,” note analysts.

The same dynamic will affect pharma and chemical exporters, as their profitability hinges on currency fluctuations.

⚡ Energy and Clean Tech

A weaker rupee raises the import cost of crude oil, which could affect oil marketing companies like BPCL and HPCL, given India’s heavy reliance on imports. However, clean energy companies such as Adani Green and Tata Power could benefit from lower debt servicing costs due to the rate cut.

Final Word: A Timely Boost with Caution Ahead

The RBI’s bold rate cut provides much-needed relief for consumers and businesses alike. Lower EMIs, improved liquidity, and greater affordability across sectors paint a positive picture in the near term.

However, with the shift to a ‘Neutral’ policy stance, further rate cuts may not follow immediately. Investors and borrowers alike must stay vigilant and diversified, as global uncertainties and inflation trends will shape the path forward.