HDFC Bank cuts MCLR despite repo rate hike; will loans become cheaper?

The Reserve Bank of India (RBI) raised the repo rate by 25 basis points today, October 7, a move that could make bank loans more expensive. However, despite the repo rate hike, HDFC Bank—the country's largest private sector bank—has reduced its Marginal Cost of Funds-based Lending Rate (MCLR) by 5 to 15 basis points. The new rates have come into effect today. The direct impact of this reduction is that the borrowing cost for customers with MCLR-linked loans will decrease, potentially leading to slightly lower monthly EMIs.

HDFC Bank has lowered benchmark lending rates across all major tenures. Customers with home, auto, or personal loans linked to the MCLR benchmark are likely to benefit the most. The overnight MCLR has been reduced from 7.90% to 7.80%. The 1-month MCLR has been cut from 7.90% to 7.75%, and the 3-month MCLR from 8.05% to 7.95%.

**Reduction in Long-Term Lending Rates**

HDFC Bank has reduced long-term MCLR rates alongside short-term ones. The 6-month MCLR has been lowered from 8.25% to 8.15%, and the 1-year MCLR from 8.35% to 8.30%. Most retail loans are linked to the 1-year MCLR. Additionally, the 2-year MCLR has been reduced from 8.45% to 8.40%, and the 3-year MCLR from 8.60% to 8.55%.

Will loans become cheaper immediately?

A borrower's EMI does not decrease immediately upon the announcement of an MCLR cut. When and to what extent the benefit is realized depends primarily on two factors:
Loan Benchmark: This reduction applies only to loans linked to the MCLR system. New loans linked to the Repo-Linked Lending Rate (EBLR/RLLR) will remain unaffected by this cut.

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