The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) unanimously decided on interest rates after six policy meetings, or 11 months. The last time the MPC had unanimously decided on interest rates was December 2023. However, unlike this time, no cuts were made then — the decision was to hold the repo.
The rate cut in the February meeting, the first in almost five years, comes a week after Finance Minister Nirmala Sitharaman presented the budget for FY26. The RBI has projected 6.7 percent GDP growth for the next fiscal year. The inflation projection for FY25 has remained unchanged at 4.8 percent.
The MPC move to cut the repo rate (the rate at which RBI lends to commercial banks) is in line with a Moneycontrol poll of economists, which had predicted a 25 basis point (bps) cut.
The RBI increased the repo by 250 bps over May 2022 to February 2023 . Since April 2023, the rate has been held steady at 6.5 percent in order to check inflation and bring it within the medium-term target of 4 percent.
RBI Governor Sanjay Malhotra said that the MPC has noted that inflation has declined. Supported by a favourable outlook on food prices and continuing transmission of past monetary policy actions, inflation is expected to further moderate in 2025-26, gradually aligning with the target.
The MPC also noted that though growth is expected to recover from the low of Q2 2024-25, it will be lower than the 8.1 percent growth of FY23-24.
“These growth-inflation dynamics open up policy space for the MPC to support growth, while remaining focussed on aligning inflation with the target. Accordingly, the MPC decided to reduce the repo rate by 25 basis points to 6.25 per cent,” Malhotra said.
The rate-setting panel also unanimously decided to continue with the `neutral' stance.
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