RBI MPC Meeting 2025: First Repo Rate Cut in 5 Years, GDP Growth Estimated at 6.7%
The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) announced a significant decision today by cutting the repo rate by 25 basis points, bringing it down to 6.25%. This marks the first rate cut in five years, with the last reduction occurring in May 2020.
Why the Rate Cut Now?
The repo rate, which was previously at 6.5%, has been lowered to boost economic activity by making borrowing cheaper. This move is expected to encourage spending and investment. The decision comes shortly after the government reduced personal income tax to increase consumption levels.
RBI’s Growth and Inflation Outlook
RBI Governor Sanjay Malhotra announced that India’s GDP growth for the financial year 2025-26 is projected at 6.7%. This aligns with the government’s Economic Survey, which estimated growth in the range of 6.3-6.8%. The RBI’s revised projections highlight the need for calibrated economic policies to sustain momentum amid global uncertainties.
On the inflation front, the central bank has projected retail inflation at 4.2% for the next financial year. For 2024-25, inflation is expected to remain at 4.8%, with a gradual alignment to the target levels. CPI-based inflation fell to a four-month low of 5.22% in December, mainly due to easing food prices.
Impact on Borrowers and the Economy
A repo rate cut translates into lower interest rates on loans linked to external benchmark lending rates (EBLR), leading to reduced EMIs for borrowers. Additionally, banks may lower rates for loans linked to the marginal cost of fund-based lending rate (MCLR), providing further relief to businesses and individuals.
Cybersecurity Measures Announced
With increasing digital transactions, the RBI has introduced new security measures to counter cyber fraud. These include an additional authentication factor for international digital payments and dedicated domain names for Indian banks and financial institutions, ensuring safer online transactions.
Global Economic Factors at Play
The policy change comes at a time of global economic uncertainty. US President Donald Trump recently announced tariffs on Canada, Mexico, and China, triggering concerns over trade wars. The dollar has strengthened against major currencies, impacting emerging markets, including India.
Forex Market Intervention
Governor Malhotra emphasized that the RBI’s intervention in the forex market is aimed at ensuring stability, rather than targeting any specific exchange rate level. The Indian rupee has faced depreciation pressures, but the central bank remains committed to managing excessive volatility.
Conclusion: A Balanced Approach
The RBI’s latest policy decision reflects a careful balance between fostering economic growth and managing inflation risks. While the repo rate cut provides much-needed relief to borrowers and businesses, the central bank remains cautious in its approach amid global uncertainties. As the Indian economy navigates external challenges, RBI’s flexible stance ensures it can adapt to evolving economic conditions effectively.
Reference from:- https://indianexpress.com/article/business/rbi-repo-rate-monetary-policy-committee-meeting-live-updates-gdp-forecast-9822269/