RBI Cuts Repo Rate By 25 Bps: In its policy review on April 9, the Reserve Bank of India’s (RBI) six-member Monetary Policy Committee (MPC) decided to lower the repo rate, the key policy rate, by 25 basis points (bps) to 6 percent, which will result in lower interest rates on home, personal, auto, and deposit rates in the days ahead. Additionally, the rate-setting panel signaled additional repo rate decreases by shifting from a neutral to an accommodating monetary policy posture.
Additionally, the MPC has chosen to reduce the GDP growth from the previously forecast 6.7% to 6.5% in 2025–2026. According to MPC, retail inflation is predicted to be 4% in 2025–2026.
The six-member MPC made the decision in the midst of increased market turbulence after US President Donald Trump recently announced reciprocal tariffs. The rate reduction follows concerns that increased tariff rates could result in inflation, heightened trade tensions, and slower global economic growth. “The picture for the world economy is rapidly shifting. According to RBI Governor Sanjay Malhotra, “FY26 has begun on an anxious note and some global trade frictions are coming true.”
Rate cut follows dip in inflation
Following the drop in inflation, the RBI’s Monetary Policy Committee lowered the repo rate by 25 basis points for the second time in a row. For the first time in almost five years, the MPC lowered the repo rate by 25 basis points to 6.25 percent at its February monetary policy. Concerns about slowing growth and easing inflation prompted the decision.
The rate at which the RBI loans money to banks to cover their short-term funding requirements is known as the repo rate.
The average inflation rate for January through February is 3.9%, which is less than the RBI’s quarterly estimate for January through March 2025. For the fourth quarter of fiscal 2025, the RBI has forecast consumer price-based inflation (CPI) at 4.8%.
How would a repo rate cut impact interest rates?
In cases where the full transmission of a 250 basis point increase in the repo rate between May 2022 and February 2023 has not occurred, lenders may also lower interest rates on loans that are tied to the marginal cost of fund-based lending rate (MCLR). From May 2022 to January 2025, banks’ one-year MCLR increased by 178 basis points.
Following the 25 basis point reduction in the repo rate in each of the previous two policy reviews, deposit rates will also decline.
Source: IE