Interest rate may be further reduced by 0.50% in 2026: RBI has scope even after 1.25% cut in 2025; Loan expected to become cheaper

The Reserve Bank of India (RBI) may further cut interest rates by 0.50% (50 basis points) in the year 2026. According to a recent report by IIFL Capital, even after cutting interest rates by a total of 1.25% in the year 2025, the central bank still has room for rate cuts. If this happens, there will be further reduction in home and auto loan EMIs, which will bring great relief to the common man’s pocket.

The report said that currently the difference between the repo rate and core inflation is about 2.8%. If we look at the average of the last 7 years, this difference remains around 1.1%. Experts believe that due to inflation being under control and this huge difference, RBI has enough technical reasons to reduce the rates.

Interest rate was reduced by 1.25% in 2025

Last year i.e. in 2025, the Reserve Bank had reduced interest rates by a total of 125 basis points i.e. 1.25% to accelerate growth. Even in the last month of the year, December, the interest rate was reduced by 0.25%, due to which the repo rate came down to 5.25%. Now it is expected to go below or close to 5% in 2026.

What will be the impact on the common man?

If RBI further cuts the lending rate by 0.50% in the year 2026, the pressure on banks to reduce the landing rate will increase. Both new and old loan customers will get direct benefit of this.

• Affordable EMI: Home, car and personal loan installments will be reduced.
• Corporate Loan: Cheap loans for companies will help in business expansion.
• FD Rates: There may also be a slight reduction in the interest received by those making FD.

Economy will gain momentum due to reduction in interest rates

According to the report, reduction in interest rates and government reforms will support the country’s GDP growth. This will improve the performance of banks and improve credit conditions.

With crude oil prices expected to be around $65, the threat of inflation also appears to be low, which is a strong point in favor of a rate cut.

Expert opinion: Good time to invest

Market experts say that due to reduction in interest rates, there can be a rise in the stock market, especially the shares of banking and reality sectors. Returns of up to 15% from the current level in Nifty are expected. At the same time, recovery can be seen in small cap stocks also.

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