Almost after 5 years, the Reserve Bank of India (RBI) has reduced the policy repo rate by 25 basis points, from 6.50 per cent to 6.25 per cent. Governor Sanjay Malhotra made the announcement on Friday in Mumbai, following a three-day meeting of the MPC.
As a result, the standing deposit facility (SDF) rate will be set at 6.00 per cent, while the marginal standing facility (MSF) rate and the Bank Rate will both remain at 6.50 per cent. The MPC has also unanimously decided to maintain a ‘neutral’ stance, focusing unambiguously on aligning inflation with the target while supporting growth.
The 25 basis points rate cut to 6.25 per cent comes after the last rate reduction in May 2020. The most recent revision occurred in February 2023, when the policy rate was raised by 25 basis points to 6.50 per cent.
Explaining the rationale behind the decision, Mr. Malhotra noted that inflation has declined and is expected to further moderate in 2025-26, gradually aligning with the target. He further informed that, according to the first advance estimates, real GDP growth for the current year is projected at 6.4 per cent, with economic activity expected to improve in the coming year. Earlier it was projected at 6.6 per cent. The bank has also revised real GDP estimates from 6.9 per cent to 6.7 per cent for the next financial year. According to the RBI, the reason behind this reduction is the uncertainty in the outlook caused due to global headwinds, leading to potential downward risks.
RBI has also projected that CPI inflation for the current financial year will be 4.8 per cent with Q4 at 4.4 per cent. Assuming a normal monsoon, CPI inflation for the financial year 2025-26 is projected at 4.2 per cent.
To avoid banking fraud Mr Malhotra also announced that, the Reserve Bank shall implement the ‘bank.in’ exclusive Internet Domain for Indian banks. Registration of this domain name will commence from April this year. This will be followed by the ‘fin.in’ domain for the financial sector.
To enhance digital security in the banking and payments system, RBI has proposed to extend the Additional Factor of Authentication to online international digital payments made to offshore merchants, who are enabled for such authentication. He also suggested Banks and NBFCs to continuously improve preventive and detective controls to mitigate cyber risks. He added that these entities must develop robust incident response and recovery mechanisms, reinforced through periodic testing, for operational resilience.
RBI has also decided that this year’s Financial Literacy Week will emphasise women’s role in financial decision-making and household budgeting. It will start from 24th February and the Governor urged all banks to actively participate in the campaign on the theme “Financial Literacy: Women’s Prosperity”.
The governor also announced a working group to undertake a comprehensive review of the trading and settlement timing of markets regulated by the Reserve Bank. The Group shall submit its report by 30th April of this year.
Reserve Bank of India Governor Sanjay Malhotra has stated that the one lakh crore tax relief announced in the recent Union Budget for the year 2025-26 will not have any significant impact on inflation. Addressing a media query during a press conference following the Monetary Policy Committee’s decision to reduce the repo rate by 25 basis points, Mr. Malhotra noted that the country has sufficient production capacity, with capacity utilisation levels at 75%. He added that the tax relief will only aid the country’s growth.
Mr Malhotra emphasised that all factors, including the recent Union Budget, were taken into consideration by the MPC when deciding on the repo rate cuts. He further stated that the agriculture sector, which constitutes 46% of the Consumer Price Index basket, was given significant attention in the budget, with special programmes announced for vegetables, fruits, and pulses. These sectors collectively contribute 11.3% of the CPI and have played a major role in inflation in recent times.