The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) has unanimously decided to reduce the policy repo rate by 25 basis points, bringing it down from 6.50% to 6.25%. Consequently, the Standing Deposit Facility (SDF) rate is set at 6.00%, while the Marginal Standing Facility (MSF) rate and the Bank Rate stand at 6.50%. The MPC also opted to maintain a neutral stance, emphasizing its commitment to achieving sustained alignment of inflation with the target while supporting economic growth.
Rationale Behind the Rate Cut
The MPC's decision is based on a detailed assessment of macroeconomic and financial developments:
- Inflation has been on a declining trend and is expected to moderate further in 2025-26, aided by favorable food prices and the transmission of past policy measures.
- Economic growth, though set to recover from the Q2 2024-25 slowdown, remains significantly lower than the previous year’s levels.
- These dynamics create policy space for the MPC to support growth while ensuring inflation stability.
Global & Domestic Uncertainties Remain
Despite the rate cut, the MPC remains cautious about potential risks, including:
- Global financial market volatility
- Uncertainties in trade policies
- Adverse weather events impacting inflation and growth
To navigate these challenges, the MPC will maintain a neutral stance, ensuring flexibility in responding to evolving macroeconomic conditions.
Impact on Borrowers & Economy
A lower repo rate could lead to cheaper loans, benefiting businesses and individuals seeking home loans, personal loans, and corporate credit. However, banks’ actual lending rates will depend on transmission of policy rates in the financial system.
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