The Reserve Bank of India (RBI) has cut the repo rate by 25 basis points to 6.25% from 6.50%, marking the first rate cut in five years. The decision, announced on Friday, February 7, follows a three-day Monetary Policy Committee (MPC) meeting and comes after nearly two years of unchanged rates.
This was the first MPC meeting chaired by new RBI Governor Sanjay Malhotra, who succeeded Shaktikanta Das. Addressing the press after the meeting, Malhotra emphasized the importance of price stability while supporting economic growth. He highlighted the impact of the flexible inflation targeting framework introduced in 2016, which has helped stabilize the economy, particularly during the pandemic.
The RBI has maintained its GDP growth projection for the next financial year at 6.7%. The decision to cut the repo rate follows major economic developments, including the Union Budget’s consumption-driven approach, efforts to boost taxpayers’ purchasing power, and a decline in inflation, although it remains above the RBI’s 4% threshold.
The rate cut also aligns with global trends, as the US Federal Reserve recently decided to keep its interest rates steady between 4.25% and 4.50%.
The MPC’s decision was unanimous, with the repo rate now at 6.25% since February 2023. The Marginal Standing Facility (MSF) rate remains at 6.50%, while the Standing Deposit Facility (SDF) rate stays at 6.00%. The next MPC meeting will take place in the new fiscal year, as this was the last meeting for FY25.
A repo rate cut generally leads to lower loan interest rates, making borrowing more affordable and potentially boosting market liquidity. Governor Malhotra is expected to address the media in a press conference later in the day at 12:00 IST.