Announcements of the RBI Monetary Policy Meeting: As of right now, the repo rate was 6.5%. The action was taken just one week after the Centre lowered personal income taxes in an effort to increase spending.
Meeting of the RBI MPC in February 2025: The repo rate, or the rate at which the RBI loans to other banks, was lowered by 25 basis points to 6.25% on Friday by the Reserve Bank of India’s (RBI) six-member Monetary Policy Committee (MPC). The RBI hasn’t lowered interest rates in five years, with the most recent one occurring in May 2020.
As of right now, the repo rate was 6.5%. The action was taken just one week after the Centre lowered personal income taxes in an effort to increase spending.
In an attempt to boost economic activity by making borrowing more affordable, the RBI’s MPC unanimously decided to decrease the repo rate, which in turn encouraged investment and spending. However, the MPC chose to stick with its “neutral” economic approach, which RBI Governor Sanjay Malhotra indicated would give them flexibility in responding to the changing macroeconomic landscape.
Malhotra claimed that average inflation has decreased since the framework’s adoption and that it has performed well for the Indian economy over the years, even during the extremely difficult time following the pandemic. With the exception of a few instances when it has exceeded the upper tolerance band, he continued, the CPI has generally been in line with the target since the framework’s implementation.
According to the RBI Governor, the RBI and MPC will continue to use the flexibility built into the inflation targeting framework to improve macroeconomic outcomes in the economy’s best interest while responding to the changing growth-inflation dynamics. The RBI Governor also stated that the framework’s fundamental components will be further improved by developing more robust models, advancing the use of new data, and improving forecasting of important macroeconomic variables.
With US President Donald Trump putting tariffs on China, Canada, and Mexico, the policy is being announced in the midst of global unrest. A month has been added to the tariffs on Canada and Mexico. The dollar rose against other major currencies on Monday as a result of the tariffs, which have also sparked fears of international trade battles.
How about the GDP forecast?
Approximately 6.7% GDP growth is projected by the central bank for the upcoming fiscal year, Governor Sanjay Malhotra declared. Approximately 6.7% GDP growth is projected by the central bank for the upcoming fiscal year, Governor Sanjay Malhotra declared.
Based on a “strong external account, calibrated fiscal consolidation, and stable private consumption,” the administration predicted a growth rate of 6.3-6.8% for 2025–2026 in the Economic Survey that was published before to the Budget.
This occurred against the backdrop of a faltering economy, predicted to grow at its slowest rate in four years, 6.4%, in 2024–2025.
How has inflation been discussed?
While maintaining its prediction for 2024–2025 at 4.8%, the Reserve Bank has set retail inflation at 4.2% for the upcoming fiscal year starting in April.
The governor stated that risks were evenly distributed and that, “assuming a normal monsoon next year, CPI inflation for 2025-26 is projected at 4.2 percent with Q1 at 4.5 per cent; Q2 at 4 per cent; Q3 at 3.8 per cent; and Q4 at 4.2 per cent.”
In December, CPI-based inflation fell to a four-month low of 5.22 percent, mostly due to a decrease in the cost of vegetables and other food basket items. In November, it was 5.48 percent.
The MPC observed that a positive outlook for food and the ongoing implementation of previous monetary policy actions had helped to support the reduction in inflation. In 2025–2026, it is anticipated to further moderate and progressively approach the goal. The MPC added that although growth is predicted to rebound from the Q2 2024–25 low, it is still much below last year’s level. The MPC can now boost growth while maintaining its emphasis on bringing inflation into line with the target thanks to this growth-inflation dynamic, Malhotra stated.
What occurs if the repo rate is lowered?
All external benchmark lending rates (EBLR) that are tied to the repo rate will decrease when the RBI lowers the repo rate, which will benefit borrowers by lowering their equated monthly installments (EMIs).
In cases where the full transmission of a 250 basis point increase in the repo rate between May 2022 and February 2023 has not occurred, lenders may also lower interest rates on loans that are tied to the marginal cost of fund-based lending rate (MCLR).
Steps to prevent online fraud
The governor of the RBI also outlined the steps the central bank is doing to combat cybercrimes. According to Malhotra, the swift digitisation of financial services has improved efficiency and convenience but also raised vulnerability to increasingly complex cyberthreats and digital hazards.
The implementation of “bank.in” exclusive Internet domains for Indian banks and “fin.in” domains for the rest of the financial sector are two measures he also announced the RBI had taken to prevent such frauds: an extension of the additional factor of authentication to online international digital payments made to offshore merchants.
RBI’s involvement in the foreign exchange market
According to Sanjay Malhotra, the RBI has maintained a steady exchange rate strategy over the years, with the declared goal of preserving stability and order without sacrificing the effectiveness of the foreign exchange market.
He went on to say: “The RBI does not target any level or band of currency rates; rather, its intervention in the forex market is focused on reducing excessive and disruptive volatility. Market forces determine the Indian rupee’s exchange rate.
What more has the governor of the RBI said?
All parties were also reassured by Sanjay Malhotra that the central bank will stick to the consultative procedure it has been using for years when creating regulations. He went on to say that before making any significant decisions, the opinions of stakeholders are important and will be taken into account.
According to Malhotra, the RBI would make sure that the implementation of such regulations goes smoothly and that enough time is allowed for the transition. In cases where the regulations have significant ramifications, the implementation will be carried out gradually.
The RBI Governor discussed the current state of the economy, stating that although high frequency indicators point to resilience and ongoing trade growth, the global economy is currently expanding below the historic average. “Inflation in services prices is impeding progress on global disinflation,” he continued.
He added that as expectations about the scope and speed of rate cuts in the US have decreased, the dollar has gotten stronger, bond yields have gotten harder, and emerging market economies have seen significant capital flight, which has caused their currencies to depreciate sharply and tighten financial conditions. Financial market volatility has been made worse by the divergent monetary policy paths of advanced economies, persistent geopolitical tensions, and increased trade and policy uncertainties. Emerging market economies have faced uncertain policy trade-offs as a result of this unpredictable global environment,” he continued.
The governor added that although the Indian economy is still robust and resilient, it has not been immune to external challenges, as evidenced by the rupee’s recent fall. “RBI has been using every tool available to it to address the multifaceted challenges,” he continued.
Speaking about the risks facing the economy, Malhotra stated that the MPC believed that the growth and inflation forecasts were at risk due to the extreme volatility of international financial markets, ongoing uncertainty surrounding international trade policy, and unfavourable weather events.