RBI Cuts Rate: Boost for Economy?

Aakhir Tak – In Shorts

The Reserve Bank of India (RBI) reduced the key lending rate by 25 basis points to 6.25% on Friday. This decision was made during the first Monetary Policy Committee (MPC) meeting chaired by Governor Sanjay Malhotra. The rate cut is the first since 2020. The RBI aims to boost the economy with this move. The next MPC meeting is scheduled for April 7-9, 2025.

Aakhir Tak – In Depth

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) announced a rate cut by 25 basis points to 6.25% on Friday under the leadership of newly appointed Governor Sanjay Malhotra. This decision signals a change in the RBI’s approach and is intended to stimulate economic activity.

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 percent with immediate effect,” said RBI governor Sanjay Malhotra. This move reflects the RBI’s confidence in the economy’s ability to absorb the stimulus.

The rate cut announced by the committee is the first since 2020. This was also the first policy meeting of Sanjay Malhotra as RBI Governor, marking the beginning of a new era in monetary policy.

“The RBI’s decision to reduce the repo rate by 25 basis points to 6.25% supplements recent announcements in the budget aimed at boosting spending and spurring economic growth,” said Boman Irani, President, CREDAI National. This highlights the coordinated effort between fiscal and monetary policies to achieve economic objectives.

This supportive monetary policy was imperative, especially after the recent 50-basis-point reduction in the Cash Reserve Ratio (CRR), which has already injected significant liquidity into the banking system. The CRR reduction has freed up more funds for banks to lend, further supporting economic growth.

As inflation continues to remain a notch higher than the medium-term target of 4%, the central bank has its task cut out: contain inflation, inject liquidity into the banking system and cut repo rates in the coming quarter too. Balancing these competing objectives will be a key challenge for the RBI in the coming months.

“On the domestic front, as per the First Advance Estimates (FAE), real gross domestic product (GDP) is estimated to grow at 6.4 per cent (y-o-y) in 2024-25 supported by a recovery in private consumption,” said Malhotra. This positive outlook provides a favorable backdrop for the rate cut. The next meeting of the MPC is scheduled from April 7 to 9, 2025. The decisions made at that meeting will provide further insights into the RBI’s future policy direction.

Aakhir Tak – Key Takeaways to Remember

RBI reduced the key lending rate by 25 basis points to 6.25%. This is the first rate cut since 2020. The RBI aims to boost economic growth. The next MPC meeting will be in April.

Aakhir Tak Editor-in-Chief

See Full Bio