RBI Likely to Cut Interest Rates by 0.5% in 2026

The Reserve Bank of India (RBI) may reduce interest rates by another 0.50% (50 basis points) in 2026. According to a recent report by IIFL Capital, even after cutting interest rates by a total of 1.25% in 2025, there is still room for a further rate cut by the central bank. If this happens, it will lead to a reduction in EMI payments on home and auto loans, providing significant relief to the common man.

The report states that the current gap between the repo rate and core inflation (basic inflation) is approximately 2.8%. In the last 7 years, this gap has typically been around 1.1%. Experts believe that, with inflation under control and this large gap, RBI has sufficient technical reasons to lower the rates further.

Interest Rates Cut by 1.25% in 2025

Last year, in 2025, the Reserve Bank of India reduced interest rates by a total of 125 basis points, or 1.25%, to boost growth. In December, the interest rate was further reduced by 0.25%, bringing the repo rate down to 5.25%. Now, there is speculation that the repo rate could fall below 5% or close to it in 2026.