RBI Monetary Policy: Repo Rate Cut to 6.25% – 5 Key Takeaways & Economic Impact

On February 7, 2025, the Reserve Bank of India (RBI) announced a 0.25% cut in the repo rate, lowering it to 6.25%. This marks the first rate cut in nearly five years, a move aimed at stimulating economic growth amid signs of a slowdown.

5 Key Highlights from the RBI's Monetary Policy Announcement:

1. Repo Rate Reduction: The Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, agreed to cut the repo rate by 25 basis points to 6.25%. This decision reflects a shift towards a more accommodative monetary policy to support economic activity.

2. GDP Growth Projection: The RBI has projected a GDP growth rate of 6.7% for the fiscal year 2025-26. Analysts base this outlook on expectations of a recovery in economic activities and supportive policy measures.

3. Inflation Outlook: The central bank forecasts inflation to remain at 4.2% for the fiscal year 2025-26, with balanced risks. The recent easing in consumer price index (CPI) inflation has given the RBI room to reduce rates.

4. Impact on Borrowers: The cut in the repo rate should lower lending rates for consumers, making loans more affordable. Borrowers can expect lower Equated Monthly Installments (EMIs). Banks will likely pass on the benefits of the rate cut.

5. Policy Stance: The RBI has kept a 'neutral' policy stance even with the rate cut. This shows its commitment to being data-driven and responsive to changing economic conditions. This approach allows the central bank to address future inflationary or deflationary trends as necessary.

This monetary policy decision matches the government's recent fiscal measures. These include income tax changes from the Union Budget 2025. The goal is to boost consumption and revive economic growth.

Industry experts have welcomed the rate cut. They expect it to positively affect many areas, including housing, automotive, and consumer goods. As a result, they believe consumer spending power will increase.

The RBI aims to support economic growth and keep prices stable, demonstrating its goal of promoting growth and controlling inflation.