RBI's first rate cut in five years may give domestic tourism a demand boost

RBI rate cut coupled with the increase in the tax exemption ceiling to Rs 12 lakh and rationalisation of Tax Collected at Source (TCS) on remittances will support discretionary spending on travel, both domestic and international.

The Reserve Bank of India's first repo rate cut in five years, coupled with tax relief in the Budget, will leave consumers with more disposable income, which can give a tourism a boost, experts have said.

After holding the rates steady for almost five years, the RBI on February 7 cut the repo rate by 25 basis points to 6.25 percent to give a boost to a slowing economy. The move comes a week after Budget 2025 cut income-tax rates, giving relief to the middle class as concerns grow over slowing consumption.

"The RBI rate cut will help boost disposable income in the hands of Indian tourists which is likely to boost tourism spends across the country, benefiting local communities," Pradeep Shetty, spokesperson, Hotel and Restaurant Association of Western India, and vice president, Federation of Hotel and Restaurant Associations of India, told Moneycontrol.

The RBI move is expected to lower EMIs for home, vehicle and personal loans.  Tourists are likely to explore more premium vacation options following the rate, as personal loans will also get cheaper and more affordable, Shetty said.

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Lokesh Sharma, a senior aviation and defence analyst, said the rate cut coupled with higher tax exemption of Rs 12 lakh and rationalisation of Tax Collected at Source (TCS) on remittances will support discretionary spending on travel, both domestic and international.

"The government’s pro-consumption fiscal measures—including tax relief in the FY26 Budget — are expected to stimulate demand, and now RBI has complemented this with lower borrowing cost," said Arsh Mogre, Economist Institutional Equities, PL Capital-Prabhudas Lilladher.

"On the demand side, rural demand continues to be on an uptrend, while urban consumption remains subdued with high frequency indicators providing mixed signals. Going forward, improving employment conditions, tax relief in the Union Budget, and moderating inflation, together with healthy agricultural activity bode well for household consumption," RBI governor Sanjay Malhotra said while announcing the MPC decisions.

In the December quarter, rural volume growth was pegged at 9.9 percent two times that of urban growth at 5 percent.