RBI MPC cuts repo rate by 25 bps to 6.25%, continues with 'neutral' stance
New Delhi, Feb 7, 2025
RBI MPC: GDP forecast for financial year 2025-26 (FY26) has been pegged at 6.7%, inflation at 4.2%
The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has decided to revise the repo rate for the first time in two years, reducing it by 25 basis points to 6.25 per cent from 6.5 per cent, Governor Sanjay Malhotra announced on Friday. During the meeting, which took place between February 5 and 7, MPC members unanimously voted to cut the repo rate.
The standing deposit facility (SDF) rate has also been adjusted to 6 per cent from 6.25 per cent, while the marginal standing facility (MSF) rate and the bank rate has been adjusted to 6.5 per cent from 6.75 per cent, the governor said.
The RBI MPC has also decided unanimously to continue with its 'neutral' stance and remain "unambiguously focused on a durable alignment of inflation with the target while supporting growth".
Explaining the rationale behind the rate cut, Malhotra said the MPC noted a decline in inflation due to favourable outlook on food prices and continuing transmission of previous RBI monetary policy actions.
"These growth-inflation dynamics open up policy space for the MPC to support agrowth, while remaining focussed on aligning inflation with the target. Accordingly, the MPC unanimously voted to reduce the policy repo rate by 25 basis points to 6.25 per cent," Malhotra said.
The cash reserve ratio (CRR) will be maintained at 4 per cent.
RBI’s real GDP growth estimates
Gross domestic product (GDP) forecast for financial year 2025-26 (FY26) has been pegged at 6.7 per cent. Quarter-wise GDP growth is pegged at:
Q1FY26: Revised to 6.7 per cent per cent from 6.9 per cent
Q2FY26: Revised to 7 per cent per cent from 7.3 per cent
Q3FY26: 6.5 per cent
Q4FY26: 6.5 per cent
CPI-based inflation forecast
For FY25, RBI maintained its projections for consumer price index (CPI)-based inflation at 4.8 per cent, with a slight drop to 4.4 per cent in the last quarter (Q4FY25).
For FY26, inflation is projected at 4.2 per cent, with the following breakdown. Quarterly inflation forecast are:
Q1FY26: 4.5 per cent from 4.6 per cent
Q2FY26: 4 per cent from 4 per cent
Q3FY26: 3.8 per cent
Q4FY26: 4.2 per cent
This MPC meeting is the first under new Governor Sanjay Malhotra, who assumed office in mid-December. With a largely reshuffled six-member MPC, analysts had anticipated a potential shift away from the hawkish stance previously maintained by former Governor Shaktikanta Das.
The rate cuts are in line with Bloomberg estimates that expected the new governor to prioritise economic growth over inflation control.
In its December 2024 Monetary Policy Committee meeting, the RBI kept the repo rate unchanged at 6.5 per cent for the eleventh consecutive meeting.
"Economic interest also warrants efficiency in economy, we recognise this. Inflation targeting has served Indian economy very well. Average inflation has remained lower since introduction of monetary policy framework," Malhotra said.
Economic Survey 2025 and inflation
The Economic Survey 2025, presented by Finance Minister Nirmala Sitharaman last week, projects India’s gross domestic product (GDP) growth at 6.3-6.8 per cent for FY26, in line with the International Monetary Fund’s (IMF) forecast of 6.5 per cent.
The survey attributes the moderation in growth to weaker manufacturing activity and reduced government spending in FY25. Following an 8.2 per cent expansion in the previous year, GDP growth for FY25 is estimated at 6.4 per cent.
Inflation remained above the 4 per cent target, with retail inflation recorded at 5.22 per cent in December.
[The Business Standard]
