RBI Announces Repo Rate Cut in Latest Monetary Policy Update

February 7th, 2025

Posted By: Team-MMTaxClub GST

The Reserve Bank of India (RBI) has announced a key monetary policy change following its 53rd Monetary Policy Committee (MPC) meeting held from February 5 to 7, 2025. Under the leadership of Governor Shri Sanjay Malhotra, the MPC decided to reduce the policy repo rate by 25 basis points, bringing it down to 6.25%. This move is aimed at maintaining price stability while supporting economic growth.

Key Monetary Policy Decisions

The primary outcomes of the latest MPC meeting include:

Repo Rate Reduction: The policy repo rate under the liquidity adjustment facility (LAF) has been reduced to 6.25% from the previous rate of 6.50%.
Adjustments to Other Key Rates:
- The Standing Deposit Facility (SDF) rate is now at 6.00%.
- The Marginal Standing Facility (MSF) rate and Bank Rate stand adjusted to 6.50%.
Neutral Policy Stance Maintained: The RBI remains focused on keeping inflation aligned with the target while ensuring steady economic growth.

Growth and Inflation Outlook

Economic Growth

India’s economic outlook for FY 2024-25 remains positive despite global challenges. According to the First Advance Estimates (FAE), real GDP is expected to grow at 6.4% year-on-year, driven by a recovery in private consumption and strength in the services and agricultural sectors. However, industrial growth remains subdued, acting as a constraint on overall expansion.

For FY 2025-26, growth is expected to improve further, supported by robust household consumption (aided by tax relief measures in the Union Budget), higher capacity utilization, and continued public sector capital expenditure. The RBI has projected real GDP growth at 6.7%, with quarter-wise estimates as follows:

Q1: 6.7%
Q2: 7.0%
Q3: 6.5%
Q4: 6.5%

Inflation Trends

Inflation has been showing signs of moderation, with headline inflation easing from 6.2% in October 2024 to lower levels in November-December 2024, thanks to declining food prices. Core inflation remains stable, while fuel prices continue to be in a deflationary phase.

Looking ahead, food inflation is expected to remain in check due to good kharif production, favorable rabi crop conditions, and a seasonal decline in vegetable prices. However, global financial uncertainties and commodity price volatility pose potential risks. The RBI’s inflation projection for FY 2024-25 is 4.8%, while for FY 2025-26, it is expected to be 4.2%, with the following quarterly estimates:

Q1: 4.5%
Q2: 4.0%
Q3: 3.8%
Q4: 4.2%

Policy Rationale and Future Outlook

The decision to cut the repo rate was influenced by the dual objectives of fostering economic growth and ensuring inflation remains within the target range. The committee acknowledged that while inflation has been moderating, global financial uncertainties and geopolitical risks continue to pose challenges. By maintaining a neutral stance, the MPC retains the flexibility to adjust policy in response to evolving macroeconomic conditions.

The minutes of the MPC meeting will be published on February 21, 2025, and the next meeting is scheduled for April 7 to 9, 2025.

The recent policy changes reflect RBI’s commitment to maintaining financial stability while fostering sustainable economic growth. With a proactive approach, the central bank aims to strike a balance between controlling inflation and stimulating investment-led expansion in the coming fiscal year.