The RBI's Monetary Policy Committee (MPC) has decided to lower the repo rate for the first time in two years, by 25 basis points to 6.25 percent from 6.5 percent, Governor Sanjay Malhotra announced on Friday. During the meeting, which took place between February 5 and 7, MPC members unanimously agreed to reduce the repo rate.
The standing deposit facility (SDF) rate has also been reduced to 6% from 6.25%, while the marginal standing facility (MSF) rate and the bank rate have been reduced to 6.50% from 6.75%, according to the governor.
The RBI MPC has also unanimously decided to maintain its 'neutral' stance and remain "unambiguously focused on a durable alignment of inflation with the target while supporting growth".
The RBI governor explained that the MPC had noted a decline in inflation due to a positive outlook for food prices and the ongoing transmission of previous RBI monetary policy actions.
"It is expected to further moderate in 2025-25, gradually aligning with the target," according to Malhotra.
The GDP forecast for fiscal year 2025-26 (FY26) has been set at 6.7 percent.
For FY25, the RBI forecasted consumer price index (CPI)-based inflation at 4.8%.
This is the first MPC meeting under new Governor Sanjay Malhotra, who took office in mid-December. With a largely reshuffled six-member MPC, analysts expected a shift away from former Governor Shaktikanta Das' hawkish stance.
The rate cuts are consistent with Bloomberg estimates that the new governor will prioritise economic growth over inflation control.
The RBI maintained the repo rate at 6.5 percent at its December 2024 Monetary Policy Committee meeting for the eleventh time in a row.
Economic Survey 2025 and Inflation
In keeping with the IMF's (IMF) prediction of 6.5 percent, Finance Minister Nirmala Sitharaman last week presented the Economic Survey 2025, which projects India's GDP growth to be 6.3-6.8 percent in FY26.
According to the survey, lower government spending in FY25 and weakened manufacturing activity are to blame for the slowing growth. FY25 GDP growth is predicted to be 6.4%, up from 8.2% the year before.
Retail inflation in December was 5.22 percent, which was still higher than the 4% target.
