The Reserve Bank of India (RBI) has lowered its key repo rate by 25 basis points to 6.25%, marking the first reduction in nearly five years. The decision was taken during the Monetary Policy Committee (MPC) meeting held from February 5 to 7. This move is expected to ease loan EMIs and offer relief to borrowers.
RBI Governor Sanjay Malhotra, who presided over his first MPC meeting, announced the widely expected rate cut on Friday morning. The six-member panel, comprising three RBI officials and three external experts, voted unanimously to lower the repo rate after maintaining it for eleven consecutive meetings.
“The Monetary Policy Committee unanimously decided to reduce the policy rate by 25 basis points from 6.5% to 6.25%,” Governor Malhotra stated in a press conference following the meeting.
RBI Governor Sanjay Malhotra emphasized the effectiveness of inflation targeting in stabilizing the Indian economy, noting that average inflation has been lower since the introduction of the monetary policy framework.
Addressing global financial market trends, Malhotra highlighted the impact of US monetary policy on currency movements, stating that expectations regarding the scale and timing of rate cuts in the United States had strengthened the US dollar.
“The global economic landscape remains challenging,” he remarked, adding that while high-frequency indicators signal resilience and continued trade expansion, overall growth is still below historical levels. He also pointed out that progress in global disinflation has stalled due to persistent inflation in the services sector.
This is the first rate cut since May 2020, aimed at boosting economic growth, which is expected to slow to a four-year low. The move follows Finance Minister Nirmala Sitharaman’s 2025-26 Budget, which introduced the largest-ever tax break for the middle class to spur consumption amid sluggish post-pandemic growth.
The RBI faces a challenge in balancing growth and inflation. While GDP is projected to grow between 6.3%-6.8% in the next fiscal year, it remains below the 8.2% recorded in FY24. Inflation has stayed above the RBI’s 4% target, complicating policy decisions. The rupee has also been under pressure, prompting RBI interventions.
Economists are divided on the timing of the rate cut, as core inflation is below 4%, but headline inflation remains a concern. To ensure liquidity, the RBI recently injected ₹1.5 trillion ($17.22 billion) into the financial system. Investors anticipate further measures, such as a cash reserve ratio cut, to support liquidity.
The government has set a fiscal deficit target of 4.8% of GDP for this year, aiming to lower it to 4.4% in 2025-26. The rate cut is expected to complement fiscal policies in driving recovery and financial stability. Borrowers can expect lower EMIs on home, auto, and other loans, but future policy moves will depend on inflation trends and global economic conditions.
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