RBI Cuts Repo Rate By 25 Bps to 6%

On Wednesday, the Reserve Bank of India (RBI) announced key decisions at its 54th Monetary Policy Committee (MPC) meeting held from April 7 to 9, 2025, as per the RBI's press release. 

Monetary Policy Decision and Stance

The MPC unanimously decided to reduce the policy repo rate by 25 basis points, lowering it to 6.00 per cent from 6.25 per cent with immediate effect. This move marks the second consecutive rate cut this year, following a similar reduction in February. The decision aligns with the RBI’s objective of achieving the medium-term inflation target of 4 per cent while fostering economic growth. Accordingly, the Standing Deposit Facility (SDF) rate was adjusted to 5.75 per cent, while the Marginal Standing Facility (MSF) rate and the Bank Rate were revised to 6.25 per cent.

The rationale behind the repo rate cut was to support the economic growth recovery while maintaining price stability. The MPC also shifted its policy stance from 'neutral' to 'accommodative,' to provide additional support to the economy. However, the RBI emphasised the need for continuous monitoring of global and domestic developments and evolving uncertainties.

Growth and Inflation Outlook

The committee discussed the global economic scenario, highlighting increasing uncertainties due to trade tariffs and global market volatility. Financial markets reacted with a decline in the dollar index, a fall in equity prices, softening bond yields, and a drop in crude oil prices. Despite these challenges, India's domestic growth outlook remained positive.

According to the National Statistics Office (NSO), India’s GDP growth for 2024-25 was estimated at 6.5 per cent. Sustained Growth support is expected from rural demand, urban consumption recovery, increased government capital expenditure, and improved balance sheets of corporates and the banking sector. However, merchandise exports (goods) might face pressure due to the uncertain global environment. The services sector is expected to remain resilient, while agriculture showed promising prospects on the supply front.

For 2025-26, the RBI projected real GDP growth at 6.5 per cent, with quarter growth rates of 6.5 per cent in Q1, 6.7 per cent in Q2, 6.6 per cent in Q3, and 6.3 per cent in Q4, respectively. On the inflation front, CPI inflation fell sharply by 1.6 per cent from 5.2 per cent in December 2024 to 3.6 per cent in February 2025, largely due to lower food prices. Fuel prices continued to remain in deflation, and core inflation rose slightly, driven primarily by an increase in gold prices.

Rationale for Monetary Policy Decisions

The RBI expressed confidence in the improving inflation outlook, supported by a substantial and broad-based correction in reduced vegetable prices, record food production, and lower crude oil prices. Considering these factors, the projected CPI inflation for 2025-26 is set at 4 per cent, assuming a normal monsoon, with quarterly rates of 3.6 per cent in Q1, 3.9 per cent in Q2, 3.8 per cent in Q3, and 4.4 per cent in Q4. The RBI’s next MPC meeting is scheduled from June 4 to June 6, 2025.