RBI MPC Meeting 2025: RBI Governor Cuts Repo Rates by 25 bps to 6.25%

The Reserve Bank of India (RBI) has announced its first monetary policy decision under the leadership of Governor Sanjay Malhotra. In the latest RBI MPC Meeting 2025, the Monetary Policy Committee (MPC) has decided to cut the repo rate by 25 basis points (bps) to 6.25%. This marks the first rate cut in nearly five years, signaling a shift in the central bank’s approach to balancing inflation control and economic growth. The decision follows the recently unveiled Union Budget 2025-26, which focused on stimulating consumer spending and bolstering economic activity.

Key Takeaways from RBI MPC Meeting 2025

Repo Rate Cut to 6.25%

The RBI reduced the repo rate from 6.50% to 6.25%, in line with market expectations. This move is expected to lower borrowing costs for businesses and consumers, ultimately supporting economic growth.

Neutral Stance Maintained

Despite the rate cut, the MPC maintained its 'Neutral' stance, indicating a balanced approach between inflation management and economic expansion. The committee emphasized the need for a gradual and sustained moderation in inflation.

Inflation Projections for FY26

The RBI projected Consumer Price Index (CPI) inflation at 4.2% for FY26, with quarterly estimates as follows:

• Q1 FY26: 4.5%
• Q2 FY26: 4.0%
• Q3 FY26: 3.8%
• Q4 FY26: 4.2%

The committee acknowledged a declining inflation trend and expects further moderation, particularly in food prices, driven by new crop arrivals.

GDP Growth Projection for FY26 at 6.7%

The RBI revised India’s GDP growth projection for FY26 to 6.7%, with a quarterly breakdown as follows:

• Q1 FY26: 6.7%
• Q2 FY26: 7.0%
• Q3 FY26: 6.5%
• Q4 FY26: 6.5%

Despite global economic uncertainties, the RBI remains optimistic about India’s growth trajectory, supported by strong domestic demand and infrastructure spending.

Liquidity and Fiscal Deficit Outlook

The RBI highlighted that system liquidity turned into deficit in December 2024 and January 2025. However, it expects liquidity conditions to stabilize in the coming months. Additionally, the government has set a fiscal deficit target of 4.8% for FY25, with plans to reduce it further to 4.4% in FY26.

Introduction of a New Domain for Banks to Tackle Cyber Fraud

The RBI announced that banks will adopt an exclusive domain name, 'http://fin.in', to enhance cybersecurity and combat online fraud. Registration for the new domain will begin in April 2025.

Global Economic Challenges and Policy Adjustments

RBI Governor Malhotra acknowledged that global economic conditions remain challenging but emphasized that India’s flexible inflation targeting framework has helped maintain financial stability.

Implications of the Rate Cut

1. Impact on Borrowers - With the repo rate cut, home loans, car loans, and other borrowing costs are likely to come down, making credit more accessible for individuals and businesses.
    
2. Impact on Investors - Lower interest rates typically lead to a bullish stock market, as reduced borrowing costs can boost corporate earnings.
   Debt market returns may decline as bond yields adjust to the lower rate environment.
    
3. Impact on Inflation - The RBI’s move to cut rates comes despite inflation still being above its 4% target. However, the gradual moderation in food prices and a stable currency could help keep inflation in check.
    
4. Impact on Economic Growth -The rate cut is expected to support economic expansion, particularly in sectors like real estate, manufacturing, and infrastructure, which are sensitive to interest rate changes.

Conclusion

The RBI MPC Meeting 2025 marks a significant shift in India’s monetary policy landscape with the first repo rate cut in nearly five years. The decision reflects the central bank’s focus on supporting economic growth while keeping inflation within manageable levels. With a neutral stance and cautious optimism, the RBI remains committed to fostering long-term financial stability and sustainable development in India.