RBI lowers repo rate by 25 basis points

7 Feb 2025 , 10:24 AM

The Reserve Bank of India governor Sanjay Malhotra has cut the repo rate by 25 basis points in his first RBI policy meeting held on Feb 07, 2025. The rate has been changed from 6.5% to 6.25% in the RBI MPC Meeting.

• RBI Governor Sanjay Malhotra projected CPI inflation at 4.8% for FY25.
• Early Q3 corporate results indicate a mild recovery in manufacturing. Business expectations remain strong, while the services sector continues to perform well.
• Rural demand is improving, but urban demand remains mixed.
• Real GDP growth for FY26 is estimated at 6.75%, with Q1 at 6.7%, Q2 at 7%, and Q3 & Q4 at 6.5% each.
• Core inflation is expected to rise but stay moderate.

The repo rate directly affects daily life by influencing overall interest rates. It is the rate at which the RBI lends money to commercial banks.

When the RBI increases the repo rate, borrowing becomes costlier for banks. To compensate, banks raise their lending rates, making loans more expensive for individuals. This leads to higher interest costs on borrowed funds, increasing repayment expenses.

Speech snippets:

In the RBI MPC meeting, governor Malhotra said that he will refine the flexible inflation framework and develop more robust models. In his speech, he emphasized the importance of financial stability for the economy. He stated that efforts would continue to strengthen and streamline the prudential framework.

He acknowledged the trade-off between stability and efficiency and assured that regulatory decisions would follow a consultative approach. He reassured all stakeholders that this collaborative process would remain a priority.