RBI Cuts Repo Rate By 25 BPS To 6.25% In First Policy Decision Under Governor Sanjay Malhotra

The Reserve Bank of India (RBI) announced a reduction in the repo rate by 25 basis points on Friday, bringing it down to 6.25% from the previous 6.50%.

Interest rates had remained unchanged for nearly two years, making this the first rate cut in five years.

The last time the interest rate was reduced was in March 2020, when the benchmark rate was lowered by 75 basis points to 4.40%.

This marked the first Monetary Policy Committee (MPC) meeting under the leadership of newly appointed RBI Governor Sanjay Malhotra, a former revenue department bureaucrat who succeeded Shaktikanta Das.

The announcement followed a three-day MPC meeting that concluded on 7th February, reported the The Free Press Journal.

Focus on Price Stability

During his post-MPC address, the RBI Governor emphasised the importance of maintaining price stability while also supporting economic growth.

Sanjay Malhotra highlighted the significance of preserving price stability and underscored how the flexible inflation targeting framework, introduced in 2016, has contributed to economic stability, particularly during the pandemic years.

The RBI has retained its GDP growth projection for the next financial year at 6.7%.

Reasons for Retaining the Rate

The decision to maintain the repo rate follows significant developments in recent weeks.

- The Union Budget adopted a consumption-driven approach, offering relief to taxpayers and increasing purchasing power.

- Inflation, after spiking in mid-2024, has since moderated but remains above the RBI's 4% target.

- India's growth, once among the fastest globally, has slowed in the previous quarter. GDP data for Q3 is expected on 28th February.

Key Takeaways from the MPC Meeting

The MPC unanimously decided to bring down the repo rate to 6.25%, the lowest since February 2023.

- The Marginal Standing Facility (MSF) remains at 6.50%.

- The Standing Deposit Facility (SDF) remains at 6.00%.

- The meeting, held from 5th to 7th February, was the final MPC meeting of FY25. The next MPC meeting will take place in the next financial year.

A reduction in the repo rate generally leads to lower loan interest rates, influencing borrowing capacity and liquidity within the market and the broader economy.

RBI Governor Sanjay Malhotra is scheduled to hold a post-MPC press conference later today.

This development follows the US Federal Reserve's recent decision to maintain interest rates in the range of 4.25%-4.50%.