Repo Rate Slashed by 25 bps, First in Last Five Years

After a five-year wait, RBI finally slashed the repo rate by 25 bps to 6.25% in the RBI MPC Meeting 2025. The last time the RBI repo rate was cut was in May 2020. After that, it increased until February 2023 to 6.50%, and then it remained the same for two years. After the cut in the decrease in the income tax, now the repo rate cut has inflicted joy across markets and amongst investors. 

RBI MPC Meeting Key Highlights

• The repo rate was lowered by all the members of the Monetary Policy Committee (MPC) unanimously so that the borrowing cost would come down and increase economic activities, which in turn would boost the economy by increasing consumption and investments. 
• Though it cut the repo rate, the RBI’s stance on the economy remained “neutral” in this meeting as well. Mr. Sanjay Malhotra, RBI’s governor thinks that keeping the stance neutral can help provide flexibility to cope with macroeconomic changes. 
• The inflation has been mostly under control with few instances of surpassing the upper tolerance level. 
• The GDP growth forecast for FY26 has been announced as 6.7% by the RBI governor. 
• The retail inflation has been projected at 4.2% for fiscal year 26 and it kept the FY25 inflation projection unchanged at 4.8%.

Here is a breakdown of the CPI inflation projection given by RBI – 

• It also announced that the CPI-based inflation came down to a 4-month low at 5.22% in December 2024 from 5.48% in November 2024. This has been a result of the previous RBI Monetary Policy framework and favourable food prices outlook. 
• RBI governor also indicated that global disinflation which is also slowing mainly driven by services price inflation. 
• Due to the dollar strengthening against INR and other emerging countries’ currencies, due to back-to-back rate cuts in the US, emerging economies are coming under pressure. There has been a huge capital outflow due to weakening INR in the recent past. 
• In the RBI monetary policy meeting, the Governor also discussed measures to be taken to counter cyber fraud. He announced –
  • An additional factor of authentication for online international digital payments to offshore merchants
  • New internet domains –
    • “bank.in” for Indian Banks
    • “fin.in” for other financial sector players
• RBI in the MPC meeting also announced that the RBI’s exchange rate policy has remained consistent over the years, to maintain stability and orderliness in the forex market. now RBI’s intervention in the forex market will only be related to removing disruptive volatility. 

Indian Economy Outlook 

Having said that, in the RBI MPC Meeting 2025, the RBI Governor also commented that the Indian economy is still strong and resilient which can help the economy grow even under pressure. However, the growing concern over the depreciating rupee is becoming a challenge for the central bank as well but it is applying all measures to overcome these challenges. 

Source: TheIndianExpress

______________________________________________________________________________________

Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.