NEWS – After holding the repo rate at 6.50 per cent for two years, the Reserve Bank of India’s (RBI) six-member Monetary Policy Committee (MPC) has reduced the key policy rate by 25 basis points (bps) to 6.25 per cent.

HIGHLIGHTS

Why the Cut?

• Stimulate Economic Growth: The primary aim is to boost economic activity by making borrowing cheaper, encouraging spending and investment.
• Inflation Under Control: With inflation within the RBI’s target range, a rate cut can be implemented without jeopardizing price stability.
• Improved Credit Access: Lower repo rate encourages banks to reduce lending rates, making credit more accessible and affordable.
• Job Creation: Increased borrowing and investment can lead to job creation and employment growth.
• Global Alignment: The move aligns India with global economic trends, where many central banks have adopted accommodative monetary policies.

Impact of the Rate Cut

• Lower EMIs: Borrowers will benefit from reduced EMIs on home and personal loans due to lower lending rates.
• Increased Spending and Investment: Lower borrowing costs can stimulate spending and investment by individuals and businesses.
• Boosted Economic Growth: Increased economic activity can contribute to overall GDP growth.
• Enhanced Credit Availability: Banks are more likely to lend with lower interest rates, improving credit access for consumers and businesses.

Potential Concerns

• Inflationary Pressures: Increased money supply and lower interest rates can potentially lead to higher inflation.
• Reduced Savings: Lower interest rates may make saving less attractive for individuals.

GDP Growth and Inflation Projections

• GDP Growth: The RBI has projected a GDP growth of 6.7% for the fiscal year 2025-26.
• Inflation: Retail inflation is expected to be around 4.2% in 2025-26.