The six-member Financial Advisory Committee (MPC) of the Reserve Bank of India (RBI) on Friday cut the repo rate – the rate at which the RBI lends money to other banks – by 25 basis points to 6.25 per cent. This is the first rate cut by the RBI in five years, the last cut was in May 2020.
The repo rate was at 6.5 per cent till now. The move comes a week after the RBI cut the personal pay rate to boost consumption by the medium term.
The RBI’s MPC took a consistent decision to reduce the repo rate to strengthen economic activity by making borrowing cheaper, thereby boosting investment and investments. However, the MPC decided to continue with its “neutral” stance for the economy, which RBI senator Sanjay Malhotra clarified will provide flexibility to react to the evolving macroeconomic environment going forward. Malhotra said the system has served the Indian economy exceptionally well over a long period of time, covering a broadly challenging period, and general growth has been low since the introduction of the system. He said since the introduction of the system, the CPI has generally been adjusted in line with the target, except for a few instances of breaking the upper resistance band.
The RBI representative said the RBI and the MPC will continue to pursue macroeconomic outcomes in the best interest of the economy, using the flexibility inherent in the system that focuses on inflation, while reacting to rising growth-inflation flows, adding that the building blocks of the system will be refined by accelerating the use of modern information, assessing key macroeconomic factors and assisting in building more robust models. This approach is being stated in the midst of global instability, with US President Donald Trump announcing taxes on Canada, Mexico and China. The tariffs on Canada and Mexico have been deferred for a month. The taxes have also fuelled fears of global trade wars, which resulted in the dollar rallying against major currencies on Monday.
What is the GDP forecast?
The central bank has projected GDP growth at around 6.7 per cent in the next fiscal year, representative Sanjay Malhotra told. The central bank has projected GDP growth at around 6.7 per cent in the next fiscal year, representative Sanjay Malhotra told. Agreeing with the fiscal study released shortly before the Budget, the government has projected a growth rate of 6.3-6.8 per cent for 2025-26 based on “strong external accounts, balanced monetary consolidation and stable private consumption”.
This comes in the scenario of a slowing economy, which is projected to grow at 6.4 per cent in 2024-25, the slowest in four years.
