In a key policy action, the Reserve Bank of India (RBI) has lowered the repo rate by 25 basis points to 6% from 6.25%. The move, made during the Monetary Policy Committee (MPC) meeting, is in reaction to heightened global economic uncertainty, particularly fueled by rising trade tensions and possible tariff effects.
Major Points of the Announcement:
Repo Rate Reduction:
The reduction in the repo rate is intended to increase liquidity and promote borrowing. This is the second rate reduction this year, reflecting the central bank’s determination to back economic momentum despite external pressures.
GDP Growth Projections Revised:
The RBI reduced its GDP growth estimate for the financial year 2025–26 to 6.5%, based on its concerns regarding the global economic environment and its spillover effects on domestic demand and investment.
Stable Inflation Outlook:
Inflation is likely to remain moderate, with estimates revised to 4%. This stable inflation outlook provides the RBI with more leeway to take an accommodative policy stance to boost growth.
Market Reactions:
The money markets had a mixed reaction to the rate reduction. Though early trading sessions were characterized by falls, the news served to ease some apprehensions. Large indices trimmed some of their losses, with investors tentatively optimistic regarding the effects of cheaper borrowing on consumption and investment.
Statement of RBI Governor
RBI Governor Sanjay Malhotra stated that the rate cut was a unanimous decision by the MPC. He emphasized the central bank’s focus on maintaining macroeconomic stability while creating room for growth. He acknowledged the rising uncertainties in the global landscape, particularly with respect to trade policies and inflation dynamics, and reaffirmed the RBI’s proactive stance in managing these risks.
Looking Ahead:
Experts believe that the gate is still wide open for cuts in interest rates, particularly in case of deterioration in global conditions. With price pressures in control and growth concerns assuming priority, the central bank seems determined to sustain the economy with ongoing easing of policy, if needed.
This action is further strengthening the RBI’s task of guiding the Indian economy in the face of adverse international events, balancing between growth and price rise to sustain long-term equilibrium.
