Governor Sanjay Malhotra with the RBI’s Monetary Policy Committee (MPC) has approved lowering the repo rate from 6.50% to 6.25%. This modification has been executed bearing in mind the prevailing global economic conditions which continue to be very challenging and require a balance between the policies of inflation control and economic growth.
While the target for the GDP growth rate for the year FY26 has been set at 6.70%, the inflation target is set to be 4.2%. For FY25, the inflation rate is expected to hover around 4.8%.
Key Highlights of RBI Monetary Policy 2025 Announcement Details Repo Rate Cut 25 bps reduction, from 6.50% to 6.25% First Rate Cut in 5 Years Marks a shift in RBI’s monetary policy approach FY26 GDP Target 6.70% FY25 Inflation Projection 4.80% FY26 Inflation Projection 4.20% Monetary Policy Stance Neutral RBI Governor Sanjay Malhotra (First MPC meet under his leadership)
Why Did RBI Cut the Repo Rate? The RBI routinely conducts evaluations and modifies the repo rate as required to maintain economic stability. A reduction in the repo rate is a tactical decision taken for several economic aspects such as growth, inflation, and external uncertainties. The following are some of the major reasons that justify the recent cut in the repo rate:
Achieving Growth Together with Containing Inflation: In light of recent global trade uncertainties as well as the volatility of the financial markets, the MPC encouraged economic growth without controlling inflation.
Stimulating Spending: Reducing the repo rate results in inexpensive loans for businesses which drives up investment spending and consumer spending.
Global Economic Struggles: Major concerns with unpredicted global markets paired with trade conflicts ensure that there is no disruption in financial stability.
Impact of the Repo Rate Cut The Reserve Bank of India (RBI) plays a central role in the economy, particularly in the formulation of its monetary policy. An important lever in the determination of monetary policy is the repo rate, and the primary goal is to manage and control borrowing and lending across the economy.
Reduced maintenance spend: Lower repo rates have allowed for decreased interest payments on residential, automobile and commercial loans.
Increased spending capability: Economic activity is advanced when there are investments and increases in expenditure spending which is facilitated by low interest rates.
Targeted Inflation: The RBI is aiming to control inflation while achieving further economic growth.
Sanjay Malhotra’s First MPC Meet as RBI Governor To this day, Shaktikanta Das has chaired every meeting about monetary policy. As of December 2024, he has been replaced with Sanjay Malhotra who now attends to proceedings as the 26th Governor.
With specific regard to the formulation of macroeconomic policies, he maintains that efficiency and stability are the a priori considerations, adding that regulation and supervision continue to be a priority.
Conclusion The cut of 25 basis points to the repo rate is intended to stimulate economic growth but with moderation to the risk of inflation. The neutral position taken seeks to address the strain caused by the volatility of the global financial markets. This suggests that the country is also attempting to decelerate its monetary policy further with inflation expectations of 6.70% and a GDP growth estimate of 26.
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