A 100 bps rate cut since February 2025 is a positive step to boost demand for loans or consumption, but deposit rates—especially for retail—are set to trend lower
1. Bank Credit: Borrowing Gains, But Recovery Slow
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The Repo rate has been lowered by 100 bps in 2025, with the last 50 bps front-loaded in June .
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Lower rates sweeten borrowing: however, credit growth remains muted at ~7% in May 2025 .
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Borrowing rates are moving down—but reaching 2021‑22 lows (e.g., 6.5% home loans) may take time.
2. The Deposit Side: Savers Take a Hit
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Banks have already cut Fixed Deposit rates by 30–70 bps since February .
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Retail depositors—especially small savers—can expect further rate declines, prompting shifts toward income‑focused assets .
3. Impact on Bonds and Bond Issuance
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Lower rates boost bond prices (inverse relationship), but markets have largely priced in the cuts already.
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Corporates may rethink bond issuances, as falling yields can narrow the cost-benefit edge for funding .
4. Economic Growth: Boost or Wait-and-Watch?
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Full-year GDP projection remains at 6.5%, despite the larger-than-expected rate cut .
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Immediate uptick in growth is uncertain; real impact may unfold over the next 3–6 months.
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Lower rates nudge consumption, with household savings trending up (~12%), potentially releasing pent-up demand .
5. Capex & Investment Cycle
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Capacity use is high (75%+) but manufacturers are yet to revive capex significantly .
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If demand strengthens, the next six months will show whether RBI’s cut translates into fresh corporate investment.
6. Bank Profits & NIM Outlook
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CRR cut will flood ₹2.5 lakh crore into the system, easing funding costs .
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Loan yields drop faster than deposit rates: this pressures margins initially, but banks may recover NIMs by Q3–Q4 FY26.
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Banks with high CASA ratios and floating-rate loans benefit most .
Takeaways
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Borrowers stand to gain first—lower EMIs, easier access to credit.
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Savers face lower returns—may shift into income-driven assets.
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Economy gets a delayed boost—consumption up, capex their horizon.
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Banks see short-term margin pressure, long-term NIM recovery.
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Bond investors—market stabilization expected; fresh cuts may be priced in.
