The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) unanimously decided to cut the repo rate by 25 basis points from 6.50% to 6.25%, marking the first rate revision in two years. The decision was influenced by easing retail inflation and slowing economic growth, even as the Rupee remains under pressure from global tariff wars.
This meeting, held from February 5th to 7th, was the final MPC meeting for FY25 and the first under new RBI Governor Sanjay Malhotra, who took office on December 11, 2024. The committee also reaffirmed its neutral stance, focusing on ensuring inflation remains aligned with targets while supporting economic growth.
GDP Growth Projections
The central bank projects GDP growth at 6.7% for the next fiscal year (2025-26), according to Governor Sanjay Malhotra. This estimate aligns with the government’s Economic Survey, which forecasted a 6.3-6.8% growth rate, supported by a strong external account, calibrated fiscal consolidation, and stable private consumption.
In contrast, the economy is expected to grow 6.4% in FY 2024-25, the slowest pace in four years.
Inflation Outlook
The RBI forecasts retail inflation at 4.2% for FY 2025-26, assuming a normal monsoon. The projected inflation breakdown is:
- Q1: 4.5%
- Q2: 4.0%
- Q3: 3.8%
- Q4: 4.2%
For FY 2024-25, the inflation forecast remains at 4.8%. CPI-based inflation declined to a four-month low of 5.22% in December, mainly due to falling food prices, including vegetables.
The MPC noted that inflation is moderating due to favorable food price trends and past monetary policy measures. While growth is expected to recover from the lows of Q2 2024-25, it remains below last year’s levels, creating room for monetary easing to support economic expansion.
Impact of Repo Rate Cut
A lower repo rate will lead to a reduction in external benchmark lending rates (EBLR), providing relief to borrowers as EMIs on loans will decrease. Banks may also lower marginal cost of funds-based lending rates (MCLR), though full transmission of previous rate hikes has not yet occurred.
Measures to Counter Cyber Frauds
To enhance cybersecurity in the digital financial ecosystem, the RBI announced two key measures:
- Additional factor authentication for online international payments to offshore merchants.
- Implementation of exclusive Internet domains: “bank.in” for Indian banks and “fin.in” for other financial institutions to improve security.
RBI’s Forex Market Intervention
The RBI emphasized that its exchange rate policy remains unchanged, focusing on maintaining stability and avoiding excessive volatility. It does not target a specific exchange rate level but ensures smooth market functioning.
Governor Malhotra’s Statement on Policy and Regulations
Governor Sanjay Malhotra reassured stakeholders that the RBI will continue a consultative approach in policymaking. He stressed that:
- Stakeholder input will be considered before major regulatory decisions.
- Implementation of key regulations will be phased and structured to allow for smooth transitions.
Global Economic Outlook & Risks
Malhotra highlighted that the global economy remains below its historical growth average, though trade expansion signals resilience. Key concerns include:
- Stalled global disinflation due to persistent service price inflation.
- Stronger US dollar and rising bond yields impacting emerging market capital flows.
- Geopolitical uncertainties and trade disruptions increasing financial market volatility.
Despite these challenges, the RBI remains committed to ensuring economic stability while fostering growth and controlling inflation.
