In its latest monetary policy review, the Reserve Bank of India (RBI) has decided to reduce the repo rate by 25 basis points (bps) to 6.25%, effective immediately. This decision was taken during the 53rd meeting of the Monetary Policy Committee (MPC), held from February 5 to 7, 2025, under the chairmanship of RBI Governor Shri Sanjay Malhotra. The MPC, which includes members Dr. Nagesh Kumar, Shri Saugata Bhattacharya, Prof. Ram Singh, Dr. Rajiv Ranjan, and Shri M. Rajeshwar Rao, unanimously agreed to lower the repo rate while maintaining a neutral monetary policy stance. The move aims to balance inflation control with supporting economic growth.
Key Policy Decisions
- Repo Rate Cut: Reduced by 25 bps to 6.25%.
- Standing Deposit Facility (SDF) Rate: Adjusted to 6.00%.
- Marginal Standing Facility (MSF) Rate and Bank Rate: Adjusted to 6.50%.
- Monetary Policy Stance: The MPC decided to continue with a neutral stance, focusing on aligning inflation with the target while supporting growth.
| Policy Repo Rate | 6.25% |
| Standing Deposit Facility Rate | 6.00% |
| Marginal Standing Facility Rate | 6.50% |
| Bank Rate | 6.50% |
| Fixed Reverse Repo Rate | 3.35% |
The RBI’s decisions are aligned with its medium-term goal of keeping Consumer Price Index (CPI) inflation at 4% within a band of +/- 2%.
Growth and Inflation Outlook
Global Economy
The global economy is growing below its historical average, despite some resilience in world trade. Challenges such as slower disinflation, geopolitical tensions, and policy uncertainties persist. The strong US dollar has added pressure on emerging market currencies and increased volatility in financial markets.
Domestic Economy
- GDP Growth: India’s real GDP is estimated to grow at 6.4% in 2024-25, driven by a recovery in private consumption. The services sector and agriculture are supporting growth, while industrial growth remains weak.
- Future Growth Drivers:
- Healthy rabi crop prospects and a recovery in industrial activity are expected to boost growth in 2025-26.
- Household consumption is likely to remain strong, supported by tax relief measures in the Union Budget 2025-26.
- Fixed investment is expected to recover, aided by higher capacity utilization, strong financial and corporate balance sheets, and the government’s focus on capital expenditure.
- Resilient services exports will also contribute to growth.
- Risks: Geopolitical tensions, protectionist trade policies, volatile commodity prices, and financial market uncertainties could pose challenges.
Inflation Trends
- Headline inflation eased in November-December 2024 after peaking at 6.2% in October, driven by lower food inflation, especially in vegetable prices.
- Core inflation remained subdued, and fuel prices continued to be in deflation.
- Future Inflation Outlook:
- Food inflation is expected to soften further due to good kharif production, easing vegetable prices, and favourable rabi crop prospects.
- Core inflation may rise slightly but will remain moderate.
- Risks include global financial market volatility, energy price fluctuations, and adverse weather events.
- CPI inflation for 2024-25 is projected at 4.8%, with Q4 at 4.4%.
- For 2025-26, CPI inflation is projected at 4.2%, assuming a normal monsoon.
Rationale for Rate Cut
The MPC noted that inflation has declined and is expected to moderate further in 2025-26, gradually aligning with the target. While economic growth is recovering from its low in Q2 2024-25, it remains below last year’s levels. These dynamics created room for the MPC to support growth while keeping inflation in check. The 25 bps rate cut is aimed at providing a boost to the economy.
However, the MPC remains cautious due to global financial market volatility, trade policy uncertainties, and weather-related risks. The neutral stance allows the RBI flexibility to respond to changing economic conditions.
What’s Next?
- The minutes of the MPC meeting will be published on February 21, 2025.
- The next MPC meeting is scheduled for April 7 to 9, 2025.
Key Takeaways
- The RBI’s rate cut aims to support economic growth while ensuring inflation remains within the target range.
- Growth is expected to recover, supported by strong consumption, investment, and services exports.
- Inflation is projected to moderate, but risks from global and domestic factors remain.
- The neutral stance provides the RBI with flexibility to adapt to evolving economic conditions.
This decision reflects the central bank’s commitment to balancing growth and inflation in a challenging global and domestic economic environment.
