Mumbai: The Reserve Bank of India (RBI) announced a 25 basis point reduction in its key repo rate, lowering it to 6.25%. This marks the first rate cut since May 2020, signaling a shift towards a more accommodative monetary policy aimed at stimulating economic growth.
Economic Context
India’s economy has been experiencing a slowdown, with the Gross Domestic Product (GDP) growth rate falling to 5.4% in the September quarter—the lowest in two years. The RBI has revised its annual GDP growth forecast for the current fiscal year down to 6.4%, a decline from the previous estimate of 8.2% in 2023-24.
Post Monetary Policy Press Conference by Shri Sanjay Malhotra, RBI Governor- February 07, 2025 at 12 noon. https://t.co/JSNoagN249
— ReserveBankOfIndia (@RBI) February 7, 2025
Monetary Policy Committee’s Decision
The Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, unanimously agreed to reduce the repo rate by 25 basis points to 6.25%. The committee maintained a “neutral” stance, indicating flexibility to adjust policy rates in response to evolving economic conditions.
Implications for the Economy
The rate cut is expected to lower borrowing costs, potentially boosting sectors such as housing and automotive by making loans more affordable. This move aligns with the government’s recent fiscal measures, including tax cuts aimed at stimulating domestic consumption.
Read Also: RBI Cuts Rates — Cheaper Home Loans Ahead!
Global Economic Risks
Despite the positive outlook, Governor Malhotra cautioned about global economic uncertainties that could impact India’s financial stability. He highlighted increasing global volatility, potential trade wars, and an unstable geopolitical landscape as significant challenges ahead.
Market Reaction
Following the rate cut announcement, Indian stock markets responded positively. The Nifty 50 index increased by 0.35% to 23,684.2, while the BSE Sensex gained 0.28% to 78,274.35. Sectors sensitive to interest rates, such as financials, automotive, and real estate, saw notable gains.
The RBI’s decision to cut interest rates reflects a strategic move to support economic growth amid current challenges. While the immediate effects are expected to be positive, the central bank remains vigilant regarding global economic risks that could influence India’s economic trajectory.
Follow us on Facebook, X, YouTube & Instagram to never miss an update from The Credible India