The Reserve Bank of India (RBI) has announced a historic repo rate cut of 25 basis points, reducing it from 6.5% to 6.25%—the first such reduction in nearly five years. This decision, made unanimously during the latest Monetary Policy Committee (MPC) meeting, signals a shift towards supporting economic growth while maintaining financial stability. Additionally, the GDP growth projection for FY26 has been set at 6.7%, and inflation is expected to ease to 4.2% in the coming fiscal year.
The move is expected to boost lending, encourage investment, and provide relief to borrowers, particularly in sectors like real estate and auto. However, challenges such as global economic uncertainties and liquidity constraints remain key areas to watch.
Key High Lights FEB 2025 RBI Monetary Policy Committee
In a significant move aimed at bolstering economic growth, the Reserve Bank of India (RBI), under the leadership of Governor Sanjay Malhotra, has reduced the policy repo rate by 25 basis points, bringing it down from 6.5% to 6.25%. This marks the first rate cut in nearly five years and reflects the central bank’s proactive approach to addressing the current economic landscape.
Key Highlights from the RBI’s Monetary Policy Committee (MPC) Meeting:
- Policy Rate Adjustment: The unanimous decision to lower the repo rate to 6.25% is anticipated to make borrowing more affordable, thereby stimulating investment and consumption across various sectors.
- GDP Growth Projection: The RBI has projected India’s real GDP growth rate for the fiscal year 2025-2026 (FY26) to be 6.7%, indicating optimism about the country’s economic trajectory.
- Inflation Outlook: Inflation has been trending towards the RBI’s target of 4%, with December figures reaching a four-month low of 5.22%. The central bank expects this downward trend to continue, forecasting an average inflation rate of 4.8% for the current financial year and 4.2% for the next.
The reduction in the repo rate is expected to have several positive effects:
- Enhanced Affordability: Lower interest rates are likely to make loans more accessible for consumers, benefiting sectors such as housing and automotive.
- Economic Stimulus: By decreasing the cost of borrowing, businesses may be encouraged to invest more, potentially leading to job creation and increased economic activity.
- Liquidity Management: Governor Malhotra emphasized the RBI’s commitment to being agile in responding to the liquidity needs of the banking system, ensuring financial stability.
Despite the positive outlook, certain challenges persist:
- Liquidity Constraints: Bankers have expressed concerns that the rate cut alone may not be sufficient to boost lending, citing ongoing tight liquidity conditions.
- Global Uncertainties: The RBI remains cautious of external factors, including geopolitical tensions and global financial market volatility, which could impact the domestic economy.
In conclusion, the RBI’s recent policy decisions underscore a balanced approach aimed at fostering economic growth while maintaining price stability. The central bank’s proactive stance reflects its dedication to navigating the complexities of the current economic environment.
