The Reserve Bank of India (RBI) has reduced the key interest rate by 25 basis points, bringing the repo rate down to 6.25% on February 7. This marks the first rate cut since May 2020, when the central bank slashed rates during the Covid-19 crisis. Since February 2023, the RBI had kept the repo rate steady at 6.5%.
The decision was announced following the Monetary Policy Committee (MPC) meeting, chaired for the first time by newly appointed RBI Governor Sanjay Malhotra.
Key Highlights from Sanjay Malhotra’s Speech
Unanimous Decision on Repo Rate Cut
The MPC voted unanimously to cut the repo rate by 25 basis points to 6.25%, while maintaining a ‘neutral’ policy stance.
Inflation Under Control
Malhotra highlighted that average inflation has remained lower since India adopted a flexible inflation targeting framework, which has significantly helped in stabilizing the economy. The Consumer Price Index (CPI) has largely aligned with the set targets.
Economic Growth Projections
- GDP growth forecast for July-September revised to 7.0% from the previous 7.3%.
- CPI inflation forecast for January-March lowered to 4.4% from 4.5%.
- RBI projects October-December GDP growth at 6.5%.
Currency & Foreign Exchange Policy
The RBI aims to smoothen excessive volatility in the foreign exchange market but does not target any specific level for the rupee’s exchange rate.
This decision signals a cautious yet supportive approach by the RBI, balancing economic growth with inflation control. The rate cut is expected to provide relief to borrowers and boost economic activity in the coming months.
