The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) on Friday announced a 25-basis-point reduction in the repo rate, bringing it down to 6.25% from the previous 6.5%. This marks the first rate cut by the central bank in nearly five years, the last being in May 2020.
The decision, taken unanimously by the six-member MPC, aims to stimulate economic activity by reducing borrowing costs, thereby encouraging investment and consumer spending. The move follows the government’s recent cut in personal income tax, a measure intended to boost consumption.
Despite the rate cut, the MPC opted to maintain a “neutral” stance on monetary policy. RBI Governor Sanjay Malhotra emphasized that this approach would allow the central bank to adapt to evolving macroeconomic conditions. He reiterated that the existing monetary policy framework has effectively supported India’s economy, particularly during the challenging post-pandemic period, ensuring that inflation largely remained within target levels, except for occasional deviations.
Malhotra further stated that the RBI and MPC will continue leveraging the flexibility of the inflation-targeting framework to achieve favorable macroeconomic outcomes. He highlighted ongoing efforts to enhance economic forecasting, incorporate advanced data analytics, and develop more robust models to refine the framework further.
