The Reserve Bank of India (RBI) has cut the repo rate by 25 basis points to 6.25%, marking the first reduction in five years. This move, aimed at stimulating economic activity, comes shortly after the government’s personal income tax cuts designed to boost consumption. The decision, made unanimously by the RBI’s six-member Monetary Policy Committee (MPC), is expected to make borrowing cheaper, encouraging spending and investment. However, the RBI maintained a “neutral” stance, allowing flexibility to respond to changing economic conditions.
A repo rate cut directly benefits borrowers as banks will reduce external benchmark lending rates (EBLR), leading to lower EMIs on loans. Additionally, lenders may cut interest rates on loans linked to the marginal cost of fund-based lending rate (MCLR). RBI Governor Sanjay Malhotra emphasized that inflation targeting has helped stabilize the economy, with retail inflation projected at 4.2% for 2025-26, down from the 4.8% estimate for 2024-25. Assuming a normal monsoon, CPI inflation is expected to moderate further, aligning with the RBI’s target.
The central bank estimates GDP growth at 6.7% for the next fiscal year, consistent with the Economic Survey’s projection of 6.3-6.8% for 2025-26. However, global uncertainty remains a concern, with U.S. trade policies and geopolitical tensions impacting financial markets. Despite these challenges, Malhotra reassured stakeholders that RBI will implement regulatory changes smoothly, ensuring sufficient transition time. He also acknowledged depreciation pressure on the rupee but reaffirmed the central bank’s commitment to using all available tools to stabilize financial conditions. As India navigates global economic challenges, the RBI’s move signals a pro-growth approach, balancing inflation control with the need for economic expansion.
Recently during the presentation of bufget 2025, Indian Finance Minister Nirmala Sitharaman came up with a major decision that brought a wave of happiness among the middle class people of India. Nirmala Sitharaman announced the individuals with income till 12 lakh per annum are not needed to pay any income tax.