In what may come as a major relief to the general public, the Reserve Bank of India (RBI) has slashed the repo rate by 25 basis points, bringing it down to 6% from 6.25%.
RBI Governor Sanjay Malhotra said, “After a detailed assessment of the evolving macroeconomic and financial conditions and outlook, the MPC voted unanimously to reduce the policy repo rate by 25 basis points to 6% with immediate effect.”
The central bank announced the cut in the key lending rate on Wednesday, following the conclusion of its Monetary Policy Committee (MPC) meeting. The three day MPC meeting which began on 7th April, was led by Governor Sanjay Malhotra.
Now, first things first, repo rate is the key lending rate at which the RBI (India’s central bank) lends money to commercial banks which offer loans to customers like me and you. Now, when the repo rate comes down, the banks will be able to borrow money from the central bank at a lower cost, the benefits of which can be passed on to customers. If the banks pass on these benefits, it could come in the form of cheaper home loans, auto loans, or other types of personal loans. This cheap money policy, aka expansionary monetary policy, aims to spur economic growth in the country.
Strikingly, this is the second consecutive rate cut, as the RBI had earlier announced a 25 basis point reduction in February this year. It is also Governor Sanjay Malhotra’s second major address since he took office in December 2024. His predecessor, Shaktikanta Das, on the other hand, had kept the repo rate unchanged at 6.5% for 11 consecutive meetings to control inflation—an approach that has since yielded results, with inflation now under check.
Since inflation has dropped below 4% and there are growing concerns over slower economic growth, it has prompted the Central bank to kick off the virtuous cycle of growth by easing the key lending rate to support demand and give a boost to investment.
According to the RBI, inflation is expected to remain under control in Fiscal year 2025-26. The RBI said that retail inflation has moderated in recent months.
According to the central bank, a sharp fall in food prices has helped lower overall price rise in January and February 2025. Following the MPC meeting, it noted that the outlook for food inflation is now more stable which is supported by better crop forecasts and the improved supply of key food items.
RBI now expects inflation to remain within the tolerance limit with the Consumer Price Index (CPI) inflation for 2025-26 projected at 4%.
The RBI added that the recent drop in global crude oil prices is a positive sign that should help keep inflation in check. The central bank, however, warned that global uncertainties and weather-related problems could still lead to higher prices.
The governor stated that according to the central bank’s latest survey, inflation expectations from households have fallen sharply that should help keep future inflation under control.
RBI has also changed its earlier stance from neutral to ‘accommodative’. The RBI Governor said, “It also decided to change the stock from neutral to accommodative. It also noted that the rapidly evolving situation requires continuous monitoring and assessment of the economic outlook.”
RBI lowers GDP forecast by 20 basis points, cites global uncertainties
The RBI has lowered its GDP growth forecast for FY 2025-26 to 6.5%, down from 6.7%, citing rising global trade risks and policy uncertainties.
Governor Malhotra said these forecasts are based on current data and balanced risks. He added that the Indian economy is still on a stable growth path but cannot stay unaffected by global trade issues.
On the weather front, the RBI expects a normal monsoon with no major El Niño impact, supporting agricultural output and food price stability.
The external sector remains strong, with steady services exports, robust remittances, a manageable trade deficit, and healthy forex reserves, helping India withstand global volatility.
The RBI said that the trade deficit remains manageable, and foreign exchange reserves are at comfortable levels. This should help the economy withstand short-term global shocks.
