RBI Governor Sanjay Malhotra during a press conference at RBI headquarters in Mumbai on February 7, 2025.
| Photo Credit: PTI

Lowering India’s interest rates for the first time in the last 57 months, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Friday unanimously cut the repo rate by 25 basis points (bps) to 6.25%, to support fading growth in the hope of inflation easing to 4.4% in this quarter and 4.2% through 2025-26.

The central bank’s policy shift, that may translate into cheaper loans for homes, cars and other purposes, comes within a week of the Union Budget for 2025-26 that seeks to drive growth by stimulating urban demand with income tax breaks worth ₹1 lakh crore.

Also read: RBI MPC meeting 2025: Banks to have ‘bank.in’ internet domain name, non-banks ‘fin.in’

The repo rate is the rate at which the RBI lends to other banks, and one basis point equals 0.01%. This is the first repo rate cut since the early days of the COVID-19 pandemic, when the RBI made a 40 bps cut to 4% in May 2020 and held it there for a couple of years. Since 2022, the repo rate has been on the rise.

‘Neutral stance’

In view of the risks from global uncertainties and upside risks to inflation, the MPC decided to persist with a neutral monetary policy stance, and stay “unambiguously focussed on a durable alignment of inflation with the target, while supporting growth,” RBI Governor Sanjay Malhotra said after the first monetary policy review under his stewardship.

Stating that headwinds from geopolitical tensions, protectionist trade policies, volatility in international commodity prices, and financial market uncertainties continue to pose downside risks to the outlook, the MPC has projected a real GDP growth of 6.7% for 2025-26 from the 6.4% estimated this year.

Assuming a normal monsoon next year, Mr. Malhotra said that the MPC expected the declining inflation to further moderate in the coming year, gradually aligning with the target. Inflation is projected to average 4.5% through the first quarter (Q1) of 2025-26, 4% in Q2, 3.8% in Q3, and 4.2% in Q4. The risks are evenly balanced, he said.

Mixed signals

“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,” the RBI Governor said.

Also read:RBI Monetary Policy 2025 key highlights

Noting that the MPC had factored in the rupee’s recent decline in its policy math, Mr. Malhotra emphasised that the RBI’s stated objective was to maintain orderliness and stability in the currency market, without compromising market efficiency. “Accordingly, our interventions in the forex market focus on smoothening excessive and disruptive volatility rather than targeting any specific exchange rate level or band. The exchange rate of the Indian Rupee is determined by market forces,” he asserted.

Also read: RBI projects FY26 inflation at 4.2%, down from 4.8% estimate in 2024-25

Liquidity crunch

India’s current account deficit is likely to remain well within “the sustainable level”, the RBI Governor said, adding that foreign exchange reserves stood at $630.6 billion as on January 31 this year, providing an import cover of over 10 months. “Overall, India’s external sector remains resilient as key indicators stay robust,” Mr. Malhotra concluded.

Also read: RBI MPC meeting 2025: RBI projects 6.7% growth for FY’26 on better Rabi harvest, tax relief by govt

Acknowledging that liquidity has been tight over December and January, Mr. Malhotra announced fresh initiatives to ease the crunch. “We will continue to monitor the evolving liquidity and financial market conditions, and proactively take appropriate measures to ensure orderly liquidity conditions as may be required for the system… not just overnight liquidity, but also durable liquidity,” he said.

Shaktikanta Das, Governor, Reserve Bank of India. File.
| Photo Credit: Thulasi Kakkat

 The Reserve Bank of India’s Monetary Policy Committee (MPC) on Friday (December 6, 2024) decided to keep the policy repo rate unchanged at 6.50% for the 11th consecutive time.

The last time the MPC had increased rates to 6.5% was in February 2023. 

The MPC also decided unanimously to continue with the neutral stance and to remain unambiguously focused on a durable alignment to the 4% target of inflation while supporting growth.

The MPC took note of the recent slowdown in growth momentum which translates into a downward revision of the growth forecast of this year. The second half of this year and next year growth outlook remains resilient but warrants monitoring.

Governor Shaktikanta Das announced the central bank’s decision on policy rates in the RBI’s concluding day Monetary Policy Committee (MPC) meeting on Friday. “India’s economy has been growing healthily in the last 3 years. It is always the effort of the RBI and the MPC to follow the mandate in letter and spirit,” he said while making the announcement.

Monetary policy is important because it affects the life of people, each and every segment of the economy, howsoever small or big, from vegetable vendors to middle class to corporates, farmers, and industry and business and it has wide ranging implications

“Our effort is to follow the flexible inflation targeting framework as provided in the RBI Act and the RBI’s mandate is to maintain price stability while supporting growth. Price stability is important for every segment of the economy. At the same time, growth is also very important.”

Stating that the last mile of disinflation is turning out to be prolonged and arduous for both emerging and developed economies, he said in India, notwithstanding the recent aberration in growth and inflation trajectories, the economy continues its journey on a sustained and balanced path towards progress.