RBI MPC Meeting 2025 Highlights: RBI Cuts Repo Rate from 6.5% to 6.25%, Check Reasons & Impact On India’s GDP

The Reserve Bank of India (RBI), under the leadership of Governor Sanjay Malhotra, held its first Monetary Policy Committee (MPC) meeting and announced a significant policy shift—a 25 basis points (bps) cut in the repo rate, bringing it down from 6.5% to 6.25%. This marks the first rate reduction in five years, aimed at boosting economic activity by making borrowing more affordable. The move is expected to enhance liquidity, support credit growth, and stimulate investment and consumption in the economy.

Parameters of RBI with Current Value

What are the Reasons for the Repo Rate 2025 to Cut?

• The decision aligns with the government's effort to boost consumption, following recent personal income tax cuts.
• The RBI aims to enhance borrowing and investment, thus stimulating economic activity.
• A neutral stance is maintained to provide flexibility in response to macroeconomic changes.

What will be the Impact on GDP Growth after the Repo Rate's2025 bringing it down from 6.5% to 6.25%?

• The GDP growth for FY26 is estimated at 6.7%, a moderate increase from the previous estimate.
• The Economic Survey 2025-26 had projected a growth range of 6.3%-6.8%, citing:
• Strong external accounts
• Calibrated fiscal consolidation
• Stable private consumption
• Current GDP growth for FY25 is estimated at 6.4%, the slowest in four years.

Inflation Outlook

• The CPI inflation projection for FY26 is set at 4.2%, assuming a normal monsoon.
• Quarter-wise inflation estimates:
• Q1: 4.5%
• Q2: 4.0%
• Q3: 3.8%
• Q4: 4.2%
• CPI-based inflation dropped to 5.22% in December 2024, primarily due to declining food prices.

What will be the Effects of the Repo Rate Cut?

• Lower EMIs for borrowers: Banks will likely reduce interest rates on loans linked to the external benchmark lending rate (EBLR) and the marginal cost of fund-based lending rate (MCLR).
• Boost to investment: Businesses may find it easier to finance expansion and capital expenditures.
• Potential risks: While the policy aims to support growth, external factors such as global trade tensions and economic uncertainties could affect outcomes.

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What will be the Global Economic Context after the Repo Rate brings it down?

• The decision comes amid global uncertainty, including:
• US tariffs on Canada, Mexico, and China
• Strengthening of the US dollar leading to capital outflows from emerging markets
• Divergent monetary policies in advanced economies
• The RBI Governor highlighted financial market volatility and geopolitical tensions as ongoing concerns.

Governor’s Statement on Economic Resilience

RBI Governor Sanjay Malhotra reaffirmed:

• Commitment to a consultative regulatory approach.
• Ensuring smooth implementation of policy changes.
• Utilizing all available tools to tackle global headwinds affecting the Indian economy.

Highlights from the Meeting

1. Impact on Borrowers

• A repo rate cut will reduce loan EMIs, benefiting homebuyers and businesses.
• The move aligns with the government’s fiscal stimulus measures announced in Budget 2025.

2. Economic Growth and Inflation

• RBI’s GDP growth projection for FY 2025-26 stands at 6.7%.
• Inflation is projected at 4.2%, with risks evenly balanced.
• Growth indicators suggest rural demand is strengthening, while urban consumption remains mixed.

3. Financial Market Response

• Stock markets reacted positively, continuing their recovery from recent losses.
• Market analysts believe the repo rate cut will improve investor confidence and liquidity.
• Experts predict limited upside for stocks, as a rate cut was already priced in.

Sectoral Impact

1. Real Estate & Housing

• Lower interest rates will increase housing affordability and boost real estate investments.
• Infrastructure projects will see enhanced liquidity and investor confidence.

2. Banking & Financial Services

• Banks must enhance cybersecurity frameworks as digital banking expands.
• Floating-rate loans will immediately reflect the rate cut, easing financial stress for borrowers.

3. Consumer & Investment Sentiment

• Lower interest rates stimulate consumer demand.
• Business confidence is expected to improve, encouraging fixed investments.

GDP Growth Projections (FY 2025-26)

Neutral Stance for Future Policy

• The RBI maintains a neutral stance, ensuring flexibility for future policy actions.
• Monetary policy will be reassessed every two months based on economic conditions.

Conclusion

The RBI’s decision to cut the repo rate to 6.25% signals a pro-growth stance while keeping inflation in check. The move is expected to ease borrowing costs, boost investments, and support economic stability. However, global uncertainties and inflation risks remain key challenges going forward.