Tuesday, 29 Apr, 2025
The repo rate now stands at 6 percent, down from 6.25 percent.
The decision was reached unanimously by the Monetary Policy Committee (MPC), signalling a coordinated effort by the central bank to support growth amid evolving economic conditions.
In a move aimed at bolstering economic momentum, the Reserve Bank of India (RBI) has lowered its benchmark repo rate by 25 basis points, marking the second consecutive reduction this year. This follows the central bank’s first rate cut in five years, which took place in February. As a result, the repo rate now stands at 6 percent, down from 6.25 percent. In tandem with the repo rate adjustment, the RBI has also revised the Standing Deposit Facility (SDF) rate and the Marginal Standing Facility (MSF) rate by 25 basis points.
The decision was reached unanimously by the Monetary Policy Committee (MPC), signaling a coordinated effort by the central bank to support growth amid evolving economic conditions. The Reserve Bank of India’s April policy meeting unfolded against a backdrop of escalating global trade tensions, spurred by tariff hikes in the United States that have reignited fears of a worldwide economic slowdown. In a significant policy shift, the central bank adopted an ‘accommodative’ stance, signaling a greater willingness to ease rates further if needed to support growth.
This marks a departure from the previous monetary policy review, where the RBI’s Monetary Policy Committee (MPC) had trimmed the benchmark repo rate by 25 basis points from 6.5 percent to 6.25 percent while maintaining a ‘neutral’ stance. That decision in February had been the first rate cut in nearly five years.
In his address, RBI Governor Sanjay Malhotra acknowledged that the financial year 2026 has commenced under a cloud of uncertainty. While inflation continues to remain below the central bank’s target, he emphasized that India’s economic growth remains on a gradual path to recovery. Reflecting these dynamics, the Reserve Bank of India has revised its GDP growth forecast for FY26 to 6.5 percent, down from an earlier estimate of 6.7 percent. The inflation outlook has also been tempered, with projections lowered to 4 percent from 4.2 percent, supported by expectations of a normal monsoon and the diminishing impact of El Niño. The central bank noted that risks to the outlook remain broadly balanced.
“Uncertainty in itself dampens growth by affecting investment and spending decisions businesses and households,” RBI Governor Sanjay Malhotra said in the central bank’s latest monetary policy statement. “Second, the dent on global growth due to trade friction will impede domestic growth. Third, higher tariffs shall have a negative impact on our exports,” he said. “There are, however, several known unknowns — the impact of relative tariffs, the elasticities of our export and import demand; and the policy measures adopted by the Government, including the proposed Foreign Trade Agreement with the USA, to name a few. These make the quantification of the adverse impact difficult,” he added.
Following the Reserve Bank of India’s decision to slash the repo rate by 25 basis points to 6 percent, borrowers are set to benefit as all external benchmark lending rates (EBLR) tied to the repo rate will drop by an equivalent margin. This move is expected to bring some relief to consumers, with equated monthly instalments (EMIs) on home and personal loans set to decline accordingly.
Source: Reserve Bank of India
In line with a similar 25 basis point rate cut announced during the RBI’s February policy review, banks had already adjusted their repo-linked lending rates downward, ensuring a quick transmission of the central bank’s policy easing.
Lenders may also consider revising interest rates on loans pegged to the marginal cost of funds-based lending rate (MCLR). Despite a cumulative 250 basis point hike in the repo rate between May 2022 and February 2023, banks’ one-year MCLR only rose by 178 basis points during that period indicating that full transmission has yet to take place.
Source: Ministry of Statistics and Programme Implementation
The government has mandated the Reserve Bank of India to maintain the retail inflation at 4 percent with a margin of 2 percent on either side for a five-year period ending March 2026. The CPI is heavily weighted by the RBI while formulating its bi-monthly monetary policy. The repo rate was last increased on February 08, 2023 by the Monetary Policy Committee (MPC) by 25 basis points (bps), bringing it to 6.50 percent. The MPC had increased the benchmark interest rate by 250 basis points in the fiscal year 2022-23 in an effort to control the raging inflation. The RBI increases the repo rate as a measure of tight monetary policy to counter inflation. Repo rate is the interest rate at which the central bank of a country lends money to commercial banks. In the event of inflation, central banks increase repo rate as this restricts the commercial banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in reducing inflation.
Commenting on the rate cut, Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank said, “the MPC’s decision to ease repo rate by 25 bps and shift its stance to accommodative is in line with expectations. We note the increasing global turmoil and its spillovers to the Indian growth slowdown will necessitate the MPC for deeper rate cuts. We see scope for additional 75-100 bps of rate cuts in the year ahead, depending on the scale of global slowdown.”
