The RBI MPC, which met for the first time under the new central bank governor Sanjay Malhotra, on February 7 cut the repo rate by 25 basis point to 6.25 percent to give a boost to a slowing economy.
The rate-setting panel unanimously decided to continue with the “neutral” stance.
The rate cut, the first in almost five years, comes a week after Finance Minister Nirmala Sitharaman presented the Budget for FY26. The RBI projected GDP growth for the next fiscal at 6.7%. The inflation projection for current fiscal year have remained unchanged at 4.8%.
The MPC decided to cut the repo rate, the rate at which RBI lends funds to commercial banks, after holding it steady for 11 consecutive times. The move is in line with a Moneycontrol poll of economists, which had predicted a 25 basis points rate cut.
The RBI increased the repo rate by 250 basis points from May 2022 to February 2023. Since April 2023, the repo rate has been steady at 6.5 percent, in order to keep a check on the inflation rate and bring it to the medium-term target of 4 percent.
The RBI may have taken comfort from the tax cuts proposed in the Budget, which will offer some relief to the common man without hurting the fiscal math, as the deficit for FY26 has been pegged at 4.4 percent.
The Economic Survey, presented a day before the Budget, pegged India's economic growth in the range of 6.3-6.8 percent in the wake of global uncertainties and growing protectionism with US President Donald Trump walking the talk on his tariff threats.
Key rates
| Key rates | Levels |
| Repo rate | 6.25% |
| SDF | 6% |
| MSF | 6.5% |
| Reverse Repo | 3.35% |
| CRR | 4% |
A rate cut at this juncture is expected to provide a sentiment boost to the common man especially as it comes in the backdrop of a tax relief from the government.
Economists feel that a rate cut along with tax cuts which will put more money in the hands of the common man will be beneficial in reviving the consumption that is a critical engine for economic growth.
The first advance estimates put out by the government in January pegged India’s growth at 6.4 percent in FY25, its lowest level in four years, pulled down by a likely decline in manufacturing and investment growth.
The RBI in the December monetary policy cut its GDP growth forecast to 6.6 percent for the current fiscal year, from 7.2 percent earlier.
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