The Reserve Bank of India (RBI) has cut the repo rate by 25 basis points, bringing it down to 6.25% from 6.5%. This marks the first rate cut in five years, with the last reduction occurring in May 2020. The decision was made unanimously by the Monetary Policy Committee (MPC) during its 53rd meeting.
The repo rate is the interest rate at which the RBI lends money to commercial banks. A reduction in the repo rate typically encourages borrowing by making it cheaper for individuals and businesses, potentially leading to lower equated monthly installments (EMIs) for borrowers.
While the MPC has opted for a neutral monetary policy stance, it aims to align inflation targets while supporting growth. The RBI has stated that its decisions are in line with the objective of achieving a 4% consumer price index inflation target, with a tolerance band of +/- 2%.
The RBI governor, Sanjay Malhotra, acknowledged that the Indian economy remains strong and resilient but has faced pressures, including the impact of global challenges on the rupee. The Indian rupee weakened to an all-time low of 87.58 per dollar on Thursday, primarily driven by foreign investor exits.
Despite these challenges, the RBI expects the real Gross Domestic Product (GDP) growth rate to be 6.7% in the next financial year, with balanced risks. The central bank has also stated that India's economy is demonstrating resilience and stability, projecting a GDP growth of 6.6% in 2024-25.