RBI Cuts Repo Rate by 25 Basis Points: A Strategic Push for Economic Growth

In a move aimed at stimulating economic growth, the Reserve Bank of India (RBI) has cut the repo rate by 25 basis points, bringing it down to 6.25%. This decision, announced during the Monetary Policy Committee (MPC) meeting on February 7, 2025, marks the first rate cut since 2020. Under the leadership of newly appointed RBI Governor Sanjay Malhotra, the central bank seeks to balance growth with inflation control while ensuring financial stability.

Key Takeaways from the Announcement

Repo Rate Slashed to 6.25%

The repo rate—the rate at which the RBI lends to commercial banks—has been reduced from 6.50% to 6.25%. This cut is expected to ease borrowing costs for businesses and individuals, encouraging investments and consumer spending.

Neutral Policy Stance

The MPC has maintained a neutral stance, balancing growth with inflation control. Governor Malhotra stressed the need to remain vigilant about global uncertainties while ensuring financial stability.

Inflation & Growth Projections

• The RBI expects inflation to ease further, aligning with its 4% target.
• GDP growth for FY 2025-26 is projected at 6.7%, with economic momentum expected to pick up in the coming quarters.

Liquidity Boost for the Economy

To support financial markets, the RBI has announced an injection of ₹1.5 lakh crore into the banking system. This move aims to ensure adequate liquidity and smoothen credit flow in the economy.

Global & Domestic Considerations

The rate cut reflects multiple factors:
✔️ Declining inflation rates
✔️ Stable food prices
✔️ Impact of previous monetary policies
However, the RBI remains cautious about global trade policies, market volatility, and potential weather disruptions.

How This Impacts You

💰 Lower Interest Rates on Loans: Borrowers can expect cheaper home loans, auto loans, and business loans.

🏦 Encouraging Business Investments: Lower borrowing costs could boost corporate expansions and new projects.

📈 Stimulating Economic Growth: Combined with government fiscal policies, such as tax cuts for the middle class, the rate cut aims to increase consumer spending and demand.

A Balanced Approach to Growth

Governor Sanjay Malhotra, who took office in December 2024, has emphasized a balanced approach—ensuring financial stability while fostering a conducive environment for sustainable economic growth. Under his leadership, the RBI appears focused on supporting long-term economic expansion while keeping inflation in check.

This repo rate cut signals a proactive approach by the RBI, aligning monetary policy with India’s broader economic goals. As businesses and consumers benefit from lower borrowing costs, the Indian economy is poised for stronger growth in the coming years.