RBI Slashes Repo Rate: Big Relief for Borrowers?

RBI MPC Meeting in February 2025: The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) lowered the repo rate or the interest rate at which the RBI lends to other banks, by 25 basis points to 6.25% on Friday. This is the RBI's first rate cut in five years; the last one was in May 2020.

As of right now, the repo rate was 6.5%. The action was taken just one week after the Center lowered personal income taxes in an effort to increase spending.

Repo Rate Decreased 

In an attempt to boost economic activity by making borrowing more affordable, the RBI's MPC unanimously decided to decrease the repo rate, which in turn encouraged investment and spending. However, the MPC chose to stick with its "neutral" economic approach, which RBI Governor Sanjay Malhotra indicated would give them flexibility in responding to the changing macroeconomic landscape.

Indian Economy Performance 

Malhotra claimed that average inflation has decreased since the framework's adoption and that it has performed well for the Indian economy over the years, even during the extremely difficult post-pandemic period. With the exception of a few instances when it has exceeded the upper tolerance band, he continued, the CPI has generally been in line with the target since the framework's implementation.

According to the RBI Governor, the RBI and MPC will continue to use the flexibility built into the inflation targeting framework to improve macroeconomic outcomes in the economy's best interest while responding to the changing growth-inflation dynamics. The framework's foundational elements will also be improved by developing more robust models, advancing the use of new data, and improving forecasting of important macroeconomic variables.

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How Does Repo Rate Influence Market?

When the RBI lowers the repo rate, all loan interest rates linked to it (EBLR) will also decrease. This means borrowers will benefit as their EMIs will go down.

Lenders have the option to lower interest rates on loans that are based on the marginal cost of fund-based lending rate (MCLR), in cases where the repo rate has not fully increased by 250 basis points between May 2022 and February 2023.

RBI’s Steps to Combat Cyber Fraud 

Additionally, the RBI Governor outlined the steps the central bank is taking to combat cyber crimes. According to Malhotra, the swift digitization of financial services has improved efficiency and convenience but also raised vulnerability to increasingly complex cyber threats and digital hazards.

He also revealed a few steps the RBI has taken to stop these types of scams: creating "bank.in" domains for Indian banks only and "fin.in" domains for the rest of the financial industry, as well as adding an extra layer of authentication to online international digital payments made to offshore merchants.