RBI MPC meet: The Reserve Bank of India (RBI) governor Sanjay Malhotra on Friday announced that the Monetary Policy Committee (MPC) has decided to cut the repo rate by 25 basis points. After the cut, the repo rate now stands at 6.25%, as against 6.5% earlier.
This is the first time in five years that the RBI’s MPC has decided to cut the repo rate. The last time a rate cut was announced was in 2020 to counter the adverse economic impact of the Covid pandemic.
Along with RBI governor Sanjay Malhotra, the other MPC members Dr. Nagesh Kumar, Shri Saugata Bhattacharya, Prof. Ram Singh, Dr. Rajiv Ranjan, and Shri M. Rajeshwar Rao attended the meeting. After assessing the current and evolving macroeconomic situation, the MPC unanimously decided to:
- reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.25 per cent with immediate effect; consequently, the standing deposit facility (SDF) rate shall stand adjusted to 6.00 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 6.50 per cent;
- continue with the neutral monetary policy stance and remain unambiguously focussed on a durable alignment of inflation with the target, while supporting growth.
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Why did RBI MPC cut the repo rate?
- According to the MPC statement, the Monetary Policy Committee observed a decline in inflation rates. With positive food price projections and the ongoing effects of previous monetary measures, further moderation is anticipated in 2025-26, progressively moving towards the target.
- The committee also recognised that whilst growth is projected to improve from Q2:2024-25 lows, it remains significantly lower compared to the previous year.
- These economic conditions have created an opportunity for the MPC to bolster growth whilst ensuring inflation alignment with targets. Consequently, all members unanimously agreed to lower the policy repo rate by 25 basis points to 6.25 per cent.
- Additionally, the committee acknowledged that heightened instability in international financial markets, ongoing uncertainty in global trade policies, and unfavourable weather conditions present challenges to growth and inflation prospects.
- This situation requires continued vigilance from the MPC. As a result, all members unanimously decided to maintain a neutral stance, allowing the committee to adapt its response based on evolving economic circumstances.
“Considering the existing growth-inflation dynamics, the MPC, while continuing with the neutral stance, felt that a less restrictive monetary policy is more appropriate at the current juncture. The MPC will take a decision in each of its future meetings based on a fresh assessment of the macroeconomic outlook.
We are committed to conduct monetary policy and take such measures, as appropriate, which are timely, carefully calibrated and clearly communicated, to facilitate conducive macroeconomic conditions that reinforce price stability, sustained economic growth and financial stability,” said RBI governor Sanjay Malhotra.