In a widely anticipated move, the Reserve Bank of India (RBI) has announced a 25 basis points (bps) cut in the repo rate, bringing it down from 6.50% to 6.25%. The decision was made during the first bi-monthly Monetary Policy Committee (MPC) meeting for FY 2025-26, held on April 5-7, 2025. In a significant policy shift, the MPC also changed its stance from ‘neutral’ to ‘accommodative’, signaling a pro-growth approach amid easing inflationary pressures.
Key Highlights:
- Repo Rate: Reduced by 25 bps to 6.25%
- Reverse Repo Rate: Adjusted to 6.00%
- Standing Deposit Facility (SDF): Revised to 6.00%
- Marginal Standing Facility (MSF) & Bank Rate: Set at 6.50%
- MPC Stance: Shifted from ‘Neutral’ to ‘Accommodative’
- Vote Split: 4-2 in favor of the rate cut and stance change
Why Did the RBI Cut the Repo Rate?
The RBI’s decision is driven by declining core inflation, a benign global commodity price outlook, and the need to support economic growth amid signs of a slowdown in private consumption. The latest CPI inflation print for March 2025 came in at 4.4%, well within the RBI’s medium-term target of 4% (+/-2%), giving the central bank room to maneuver.
Governor Shaktikanta Das, in his policy statement, emphasized the RBI’s commitment to maintaining financial stability while enabling a conducive environment for growth:
“The moderation in inflation coupled with the evolving growth-inflation dynamics has provided the space for a calibrated policy easing. The shift to an accommodative stance ensures that the RBI remains ready to act further, should the situation warrant.”
Market Reaction
The Indian stock markets responded positively to the announcement. The BSE Sensex surged over 400 points, and the Nifty 50 breached the 23,000 mark intraday, driven by gains in rate-sensitive sectors like banking, auto, and real estate. Bond yields also softened, with the 10-year benchmark yield easing to 6.92%.
Impact on Borrowers and the Economy
A repo rate cut means that commercial banks can borrow more cheaply from the RBI, potentially leading to lower interest rates on loans, including home loans, personal loans, and car loans. This could spur consumption and investment, providing a much-needed boost to India’s GDP growth, which was pegged at 6.8% in FY 2024-25, according to NSO estimates.
Experts believe the RBI has now entered a rate easing cycle, with more cuts possible in upcoming policy meetings if inflation remains under control and global risks such as oil price volatility or geopolitical tensions stay contained.
RBI GDP Growth Forecast for FY 2025-26
In its outlook, the RBI has retained its real GDP growth projection at 7.0% for FY 2025-26, citing resilient rural demand, strong government capex, and a likely pick-up in private investment. However, it cautioned about downside risks including:
- El Niño-related weather disruptions
- Global financial market volatility
- External sector headwinds
The RBI’s 25 bps repo rate cut and stance change to accommodative underscores a decisive policy pivot aimed at rejuvenating economic momentum. As inflation remains under control and growth takes center stage, the move is expected to provide a timely fillip to the Indian economy heading into FY 2025-26.
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