Finance
RBI MPC Meeting February 2025: The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) decreased the repo rate (the rate at which the RBI lends to other banks) by 25 basis points on Friday, to 6.25 percent. This is the RBI’s first rate cut in five years, with the latest coming in May 2020.
Until today, the repo rate stood at 6.5 percent. The move comes just a week after the Centre reduced personal income tax to promote consumption.
The RBI’s MPC unanimously decreased the repo rate in an effort to encourage economic activity by making borrowing more affordable, so stimulating consumption and investment. The MPC, however, agreed to continue with its “neutral” posture for the economy, as RBI Governor Sanjay Malhotra explained would provide flexibility to respond to the evolving macroeconomic environment.
According to Malhotra, the framework has served the Indian economy well over the years, particularly during the extremely difficult period following the pandemic, and average inflation has been lower since its implementation. He said that since the framework’s implementation, CPI has remained mostly aligned with the target, with only a few instances of exceeding the upper tolerance range.
The RBI and MPC will continue to improve macroeconomic outcomes in the best interests of the economy using the flexibility embedded in the inflation targeting framework, while responding to the evolving growth-inflation dynamics, according to the RBI Governor. The building blocks of the Framework will be refined further by making advances in the use of new data, improving forecasting of key macroeconomic variables, and develop more robust models.
The strategy is being revealed amid global uncertainty, following US President Donald Trump’s announcement of tariffs on Canada, Mexico, and China. The duties on Canada and Mexico have been postponed for one month. Tariffs have also sparked fears of global trade battles, causing the dollar to strengthen against key currencies on Monday.
Source: IE
